Bank of New York Mellon has a lot of clients who want to exchange dollars for foreign currency, and a lot of clients who want to exchange foreign currency for dollars
You'd think that'd be a nice way to earn the spread consistently, right?
Wait ... it gets better (for BoNY Mellon):
- Throughout a trading day or session (which could be as long as 24 hours), as each custodial client's account generated FX transactions to be executed... the Bank's practice was to aggregate those FX transactions for all SI clients and group them by currency pair
- Near the end of the trading day or session, the Bank priced those SI FX trade requests it had received throughout that day or session
There's more to come (but give yourself a gold star if you've seen this coming) ...
- To determine the price for each ... transaction for most currencies, the Bank examined the range of reported interbank rates from the trading day or session and assigned the rate on SI trades as follows: if the client was purchasing foreign currency, the client received a price at or close to the highest reported interbank rate for that day or session (at or near the least favorable interbank price for the client reported during the trading day or session), and if the client was selling foreign currency, the client received a price at or close to the lowest reported interbank rate of the day or session (also at or near the least favorable interbank price for the client reported during the trading day or session).
Uh-huh ...
But, not looking so good for BoNY now:
BoNY Mellon is paying $714 million and will "terminate its employment relationship with certain executives" who were responsible
There more (much more ... and its well worth a read) at Bloomberg: Bank of New York Mellon's Best FX Execution Was Pretty Bad
