First it was humans. Now it is vacuum tubes.
Having quickly learned that letting carbon-based traders engage in FX (or stock, or bond, or Libor, but not gold, never gold) rigging usually leads to said carbon-trader ultimately being fired with the bank suffering a violent slap on the wrist, banks are getting smart, and have – as we have been claiming for about 4 years – decided to let pre-programmed algos do all the market manipulation. Only this time it is not some tinfoil blog making this accusation, but New York regulators who according to Bloomberg, have found evidence that Barclays Deutsche Bank may have used algorithms on their trading platforms to manipulate foreign-exchange rates, a person with knowledge of the investigation said.
As Bloomberg reports, the practice suggests there may be a systemic problem involving automated tools that goes beyond individuals colluding to rig currency benchmarks and take advantage of less sophisticated clients.
Whatever tipped them off: was it looking at any given Yen cross for about a minute and seeing the now surreal stop hunts that take place on a constant basis as algos outrig each other in attempts to pick the pockets of any human fools who still think they have a chance in yet another rigged, manipulated market.
The algorithms' use is being scrutinized by the New York Department of Financial Services, said the person. The investigators are looking into the practice at each bank and it isn't clear if there's a link between the two, according to the person, who asked not to be named because the matter isn't public. The algorithms were embedded in Barclays's BARX trading platform and Deutsche Bank's Autobahn system, according to the person.
The two services provide electronic marketplaces for the banks' customers to trade currencies. Rather than directly matching one client's buy order with another's request to sell, the systems aggregate all requests from the banks' clients to create prices that are displayed to customers. The banks profit from the spread or the difference in the price at which currency is sold and bought.
