Regulation gone crazy.

I recently read of a Trader at HSBC who has been prosecuted for the amount of money he made when executing an FX order valued at eight billion dollars which he described as “Christmas”. Whilst I despise HSBC as standing for everything that is wrong with banking in the second decade of the twenty-first century, I have a certain sympathy for the trader in question.

The market that these transactions are traded in is called the interbank market for a reason. It is because it is where banks trade with each other, since there is no fixed market where prices are both transparent and available to all.

For example, if I am trading the Euro versus the dollar for HSBC and Credit Suisse call me for a price, I am the market at that point and can make any price I want. If the broker’s price, for indication, is 29/30 in amounts up to five million and I am being asked for a price in twenty-five million I can make 27/28 or 31/33 depending on what I feel the Credit Suisse trader wants to do or what position I am carrying.

When a large Corporate client comes to me and asks the price I can make him in Eight Billion dollars, what does he expect to get? Can I ask him a price? No, he is a market user and there is a price for that service. In the event he paid 0.1% to get the trade done.

Self-regulated market was more trustworthy.

The enormously over-regulated state of today’s foreign exchange market is a totally different animal to the dealing room that I walked in in May 1990, that doesn’t mean it’s better, just different!

At the risk of sounding like someone hankering after the past so much, I cannot see the future, I absolutely believe that the “blanket regulation” of the financial markets has brought about the whole situation we find ourselves in now where the public feels that banks are not to be trusted in any way.

Regulation is not a new thing. As I said previously, I experienced two “controllers” who pawed over every trade the dealers made back in 1980 just to try to second guess them. Of course, you cannot have dealers entering virtual chat-rooms discussing their positions or orders, just as interest rate traders must reflect their true cost of funds when setting LIBOR’s but are these really matters for an external regulator? No, I do not believe they are.

There was a time, believe it or not that the self-regulation of the market was as simple as calling someone out. That is obviously impossible now, but it was far more effective and less dramatic than we see now.

Are those cries of “well he would say that I hear”?

Pitfalls are everywhere.

It was a normal day, nothing particularly exciting was happening, there were no important numbers to be released, so traders were keeping positions small.

I had been a trader about six months by then but what I saw that morning started with me forever and indelibly imprinted on me the pressure that can suddenly swell up and engulf a trader.

This is a true conversation that took place.

Salesman receives a call from a major client

“Ian can I have a mark yen in a yard please?”

“Sure 97/00”




Salesman relays the price by telephone to the client.

“OK at 97”


At that point, the trader adds the trade to his position and carries on hardly concerned.

I should say right now, that in market parlance, for those who don’t know, a yard is one billion! And that one billion Deutsche Marks was a wholly different proposition to one billion Yen.

Confusion Reigns

I turned to my colleague and asked innocently: “I think Ian took that as a yard of Yen while Alastair was asking in a yard of marks. I had taken the call originally and passed it on, as he had asked for Alastair by name, so had known that it was a major client who had asked.

My colleague stood and asked the question. Alastair said…..

“of course it was Marks, it was (unnamed client) on the line”

“How the **** was I supposed to know that, you never said”

“Didn’t you hear Alan shout over to me when the call came in”?

At that point pandemonium ensued as the trader was about 10 ticks under water on a massive position. The chief trader’s voice rose above the cacophony of noise calling for everyone to call out to cover.

Eventually it was done, the loss has been minimised and the inquest could begin:

“No one said it was that client”

“Why didn’t you say clearly it was Marks not Yen”

“I did”

“You didn’t”

So, it went on until an agreement was reached and life returned to normal, whatever that is!




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