More from the minutes and discussions of the Chief dealers sub group and the show that concerns were raised in 2006 over possible option manipulation. The minutes note that FX trade systems could be manipulated. Barriers were also part of the discussion which focused on determining when an FX option would trigger
Some systems required multiple hits above a certain size to record a price as having traded; others had very poor liquidity at certain times; some were more easily manipulated by vested interests
Other notes from the minutes;
- July 2006: It was noted that there was evidence of attempts to move the market around popular fixing times by players that had no particular interest in that fix
- July 2006: Fixing business generally becoming increasingly fraught due to this behaviour
- May 2008: Showed concern over fixing methodologies
- July 2008: Discussion on potential manipulation and WM/Reuters rates
- Sep 2009: Meeting had no suggestion of fraud on discussion of ZAR/JPY fixings
The BOE has today suspended a member of staff pending an investigation. They say that while they have found no evidence to date of collusion, it requires staff to “follow rigorous internal control processes and so today has suspended a member of staff”
No doubt there’s some skeleton knocking around in the closet that will come to light and I’d like to hear more about what went on with options, but it might be hard to prove manipulation of busting option levels and positions when there is so much ambiguity compared to a fixing event.
