
EU charges eight banks over alleged government bond cartel - Jerry2
https://www.reuters.com/article/us-eu-antitrust-banks/eu-charges-eight-banks-over-euro-government-bond-trading-cartel-idUSKCN1PP1UA
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lordnacho
As an ex trader, I'm not surprised. Customers on the buy side have been
suspicious for years, but any one of us would not have the pieces to figure it
out.

Roughly in the mid 2000s it got very common for people in the trading business
to get on chatrooms. Bloomberg is probably the best known, but somehow Yahoo
Chat also has a piece in the commodity space.

The chats go on constantly, and I would guess people just didn't think anyone
would look through the records. Much like with squawk boxes, who would ever
imagine someone listening to the recordings?

Similar cases have happened in FX and LIBOR, and it's quite clear what the
incentives are. You might think that some banks are long and some short, thus
cancelling out the market effect, but that's not the case. Often the trade
that's popular is the same for everyone, so the banks are on one side and the
customers on the other. So if you have a small group of banks that in a
chatroom, it's quite tempting to collude.

You also have to think about how market making works. It's at heart an
information business. If you know customers are going to be buying, you want
to get inventory first and sell it to them. It's nice to be the first guy to
do that but realistically you won't know what's up all the time. Makes good
sense to have friends at other banks.

~~~
mickeyp
When I worked in commodities trading about 8-9 years ago, everyone used Yahoo
Chat. However, it also popped up a message (as I recall) informing the user
their conversations were being recorded for regulatory reasons.

~~~
xfitm3
I’m really impressed that chat rooms were used to trade information. It’s
something I do in my area of technology and it makes perfect sense in
hindsight.

Are the groups an open secret to give legitimacy to the info, or is membership
more controlled?

~~~
throwaway0009
Chat rooms are used as a way to communicate with clients. Clients can inquire
about prices and submit orders through chat. They're also used to share market
commentary within banks. It's not allowed to have chats between traders at
different banks now.

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xiphias2
Again as usual people were stealing lots of money (not just the banks), and
they aren't even named, and they won't go to prison.

These ,,charges'' are part of the cost of doing ,,business''

~~~
bboreham
Traders went to prison for the Libor scandal; why would you think no-one will
go to prison for this?

~~~
joering2
Too big to jail. I seen Elizabeth Holmes few weeks ago in California. having
breakfast with some friends at very luxury spot. Laughting and enjoying her
life. No worries at all.

~~~
xiphias2
Trump was also speaking down on the stock market bubble and the inflated
banking system...until he was elected.

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Fnoord
Which 8 banks?

~~~
short_sells_poo
I work in finance (although on the buy side), my gut feeling is that it's the
usual suspects: big investment banks. The people manning the prop desks in
these institutions get to know each other eventually as the landscape is
fairly small and they all work for/with each other eventually.

This means that cliques along the lines of "I'll scratch your back if you'll
scratch mine" form naturally. It's almost impossible to prevent as a lot of
the trading happens directly between traders and never crosses exchange
boundaries and even then, it's often tricky to prove collusion purely based on
the trades. Official trading communication channels are monitored, but this is
irrelevant if the deal can be pre-arranged privately off channel.

There are too many conflicts of interest in the entire industry really. It's
not in the best interest of the banks to monitor their internals too closely.
Sure, there are plenty of theatrics and checkbox-ticking exercises, but
really, as long as it is cheaper to pay the eventual fines than to employ
armies of auditors and actually give them the motivation and power to enforce
the rules, it's not happening.

The internal controls themselves can be fairly annoying too. I remember a 6
month effort to get our legal department to clear a US fund launch because
their incentive was to just reject every proposal. They don't directly get to
see the benefits of a successful product, but would certainly feel the pain of
one that gets into trouble for whatever reason.

~~~
throwaway0009
> The people manning the prop desks in these institutions

The Volcker Rule (part of Dodd-Frank) prohibits prop trading at banks (with
few exceptions). The big banks have been actively discouraging it as well,
changing comp structures to avoid rewarding prop trading.

> trading happens directly between traders and never crosses exchange
> boundaries

All these trades still need to be cleared, no? There's a structure to markets
that you're papering over here.

> It's not in the best interest of the banks to monitor their internals too
> closely.

You may think this, but traders at banks are subject to tons of surveillance.
Banks take lots of measures now to catch rogue traders even if it's just
because they don't want dirty laundry being aired publicly.

~~~
short_sells_poo
> The Volcker Rule (part of Dodd-Frank) prohibits prop trading at banks (with
> few exceptions).

Ok, replace prop trading with a fund trading OTC products that the bank runs.

> All these trades still need to be cleared, no? There's a structure to
> markets that you're papering over here.

They do, and as I wrote in a bit that you didn't quote, it's largely
irrelevant because it's not that difficult to hide collusion. Heck, the guys
fixing LIBOR did it successfully even with all the controls you claim the
banks put in place.

> You may think this, but traders at banks are subject to tons of
> surveillance.

Yes, there is tons of surveillance. There is (in my experience) fairly little
actually effective surveillance. For once, surveillance is never an
interesting task. I consider it the same as guard duty. 99% of the time,
nothing happens. Humans are not good at catching unexpected outliers. So you
automate a lot of the checks, but these either produce too many false
positives and thus bury the true problems in the noise, or they can be
circumvented.

As I wrote, I consider the root cause to be a problem of incentives and
conflicts of interest. No amount of patching with egregious audit and or
lawyering will fix this. I consider statements like "but look at all the
checks we already do" theatrics.

Look I'm in the industry. I have to complete 5 different training and
educational courses every month, spanning from market abuse, to insider
trading to fraud. Nobody takes this crap seriously and it is broadly
considered a complete and utter waste of time. We have to fulfill a bazillion
reporting obligations, but all of it is just a thin veneer of compliance to
tick checkboxes. Every year, some chums from KPMG/PwC/<insert alphabet soup>
come around, check that there are no obvious problems and rubberstamp
everything. They find some token things which get reported and rectified so it
looks like they actually do something.

I have friends who work in compliance/audit departments, and even those who
want to do their work properly, run into problems because it's tricky to put
heat on any group that is making money.

Most people I encounter in the industry are actually honest and hard working.
Even though the checks are more or less easily circumvented, the majority of
people choose not to do obviously illegal things. But to claim that the
current setup is somehow successful at preventing shenanigans is dishonest.

~~~
throwaway0009
> Look I'm in the industry.

So you’re the only person on HN who works in finance?

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cinquemb
With euro denominated bonds rates, one would question if there was much of a
market in the first place that wasn't already stacked…

------
benj111
To play devils advocate. Around that time you had periods where banks didn't
know if their competitors were going to be around next month, there were also
periods where they didn't know if several major European nations were going to
be defaulting on their debts.

In that kind of situation do the normal rules apply? I don't doubt during the
banking crisis several 'dodgy' deals were done between the central banks,
politicians, and banks. And if it stopped the entire global economy going tits
up, I'm ok with that.

Now the devil is in the details obviously, this could just be a case of
personal enrichment.

~~~
M2Ys4U
>In that kind of situation do the normal rules apply?

Yes.

~~~
benj111
So if at the worst extent of the financial crisis it was becoming clear a bank
was going to collapse. If the central bank fast tracked through a deal to get
that bank sold over a weekend, you would be against that?

~~~
chmod775
I don't know how you could even get that idea.

Upholding the law is significantly more important than saving some company,
even if it's a large bank.

If you're going to throw law and order out of the window over saving some
shitty banks, then you already have a bigger problem than disagreeable numbers
on balance sheets.

~~~
benj111
It isn't about saving the company, or its share holders.

It's about saving all the savings of other depositors, about preventing a run
on that, and other banks, about trying to maintain the banking system.

Banking laws are meant to maintain stability. If they get in the way of that,
they should at least be re examined.

~~~
chmod775
"Re-examining" and changing laws is different from not punishing criminals and
law-breaking corporations.

You can change the law later as much as you like.

The point is upholding it in the first place and not adding subjective
measures like "but it's not a good law!" into the equation when you determine
guilt and fines.

Even if you immediately repeal or change the law, you still have to punish
those that broke it.

~~~
benj111
Were the last people to _illegally_ practice homosexuality in your country
punished? It is societies choice to decide whether to enforce a law.

I meant 're-examine' very broadly. And the 2 examples I've given so far in
this thread have both involved the authorities.

