The New York Attorney General’s Criminal Enforcement and Financial Crimes Bureau has opened an investigation into forex manipulation by four interdealer brokers who operate currency trading platforms. Subpoenas were served last week to Tullet Prebon PLC, BGC Partners, Inc, GFI Group, and TFS-ICAP Ltd.
TFS-ICAP is a joint venture between ICAP Plc and Cie. Financiere Tradition SA. GFI Group is owned by BGC Partners. This isn’t the first brush with the law for ICAP, which was fined $88 million for helping “too big to fail” banks manipulate the LIBOR rate.
The firms are accused of allowing “spoofing” on their trading platforms by big banks, in order to rake in more transaction fees. Spoofing involves placing a large number of orders you never intend to complete, in order to manipulate the price in a desired direction. These orders are all canceled at once before making your “real” trade on the other side, at a price distorted in your favor.
The alleged forex manipulation occurred in futures contracts for emerging market currencies. Due to the low liquidity of these markets, it takes far less effort to move prices where ever un unscrupulous trader wishes. Spoofing is the same technique used by HFT (high frequency trading) algorithms to manipulate stocks and commodities, including gold.
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