LIBOR rigging, Deutsche Bank, High Frequency Trading, the Race to Zero

Germany’s Deutsche Bank has been fined a record $2.5bn (£1.7bn) for rigging Libor, ordered to fire seven employees and accused of being obstructive towards regulators in their investigations into the global manipulation of the benchmark rate.

The penalties on Germany’s largest bank also involve a guilty plea to the Department of Justice (DoJ) in the US and a deferred prosecution agreement. The regulators released a cache of emails, electronic messages and phone calls showing the attempts to move the rate used to price £3.5tn of financial contracts (meaning Loan Agreements for individuals and corporates globally). Deutsche Bank is a multinational business whose Net Worth is  larger than the shrinking Greek economy. However look at the ‘calling to account’ of the Greeks versus the $2.5BN fine on Deutsche & then business-as-usual afterwards. This substantial fine is financed from Deutsche’s illegally generated revenues.
Yanis Varoufakis @yanisvaroufakis
FDR, 1936: “They are unanimous in their hate for me; and I welcome their hatred.” A quotation close to my heart (& reality) these days
10:49 AM – 26 Apr 2015

The Guardian reported Navinder Singh Sarao, the British financial trader accused of making $40m (£27m) by manipulating US stockmarkets and in the process contributing to the 2010 “flash crash”, invested £2m of his profits in a company linked to a former court of appeal judge, a City grandee, a pair of private equity tycoons and a media entrepreneur. The fresh details of how Navinder Singh Sarao’s trading profits appear to have filtered into more mainstream parts of the City have emerged after a week in which the previously obscure trader was propelled on to the front pages after his arrest by British police on Tuesday, and the US Department of Justice (DoJ) started extradition proceedings. The US authorities allege that Sarao, now dubbed the “Hound of Hounslow” in a reference to Martin Scorsese’s 2013 film The Wolf of Wall Street, “spoofed” financial markets from his parent’s semi-detached home in Hounslow using commercially available trading software to place $200m of false trades. The agency added that the supposed market manipulation contributed to the flash crash on 6 May 2010, when the Dow Jones index plunged 600 points in five minutes and created havoc in the world’s financial markets.

If, as US authorities allege, this single trader operating out of a semi in Hounslow helped cause a sudden 6% plunge in the world’s biggest stock market, is it a system built on sand? And what damage could be done by market operators with bigger financial resources?

The words “near miss” were used by Andrew Haldane, [Bank of England’s chief economist], in a famous speech in 2011, when regulators were (as now) struggling to understand what happened. “It [the flash crash] taught us something important, if uncomfortable, about our state of knowledge of modern financial markets,” said Haldane. “Not just that it was imperfect, but that these imperfections may magnify, sending systemic shockwaves… Flash crashes, like car crashes, may be more severe the greater the velocity.”

The title of Haldane’s speech was “race to zero,” a reference to the astonishing speed of trading made possible in today’s financial markets by immense computing power created.

False Trading [or Quote stuffing] is the practice by which stock market players called high-frequency traders slam vast numbers of orders into the system, cancelling them before anyone can react, with the aim of slowing the transit of information to competitors, or of creating confusion from which they can profit – all in the space of milliseconds. Michael Lewis’s Flash Boys, the 2014 book  split the world of High Frequency Trades wide open, in addition to getting the US., Department of Justice to investigate false trades.