Did Forex Rigging Banks Leave Traces of Manipulation in Their FX Pricing Algorithms?

Another chapter in the foreign exchange fixings saga is up for grabs as apparently the New York’s Department of Financial Services has embarked on a new path as part of the ongoing fixings manipulation investigations, suspecting that Deutsche Bank and Barclays Plc used certain algorithms within their platforms to facilitate price manipulation.

Reuters reports that Deutsche Bank and Barclays’ FX market-making algorithms are under investigation by the New York banking regulator according to sources. While this sounds intriguing and makes for a good story, it is highly debatable whether the monitoring is in fact aiming at the algorithms or at identifying other tactics actually used for manipulating FX fixing rates.

First of all, while the desire to inflate bonus checks at major banks’ trading desks have clearly overwhelmed common sense, leaving a clear trace within the banks' systems, in a digital environment where every bit of data is recorded and everybody knows about it, it's not in the style of the secret chatrooms where traders gathered to conspire about fixing manipulation.

The second, and main, reason any findings linkable to manipulation of foreign exchange fixings is doubtful is purely technological. It would be very difficult, if not impossible, for regulators to prove if a certain algorithm has been designed to be used for securing better matching or for manipulation.

Automated Market Makers Market Makers Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v Read this Term use algorithms to provide Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term in electronic markets. Two traders with a different take on the market direction will rarely be matched directly. Instead, a set of instructions can take the function of matching a single trade with hundreds of different orders.

The complexity of these systems is extraordinary and the compliance procedures which they have to pass are quite stringent.

Even the notoriously famous and allegedly unfair high-frequency trading algorithms have been, in fact, designed to fully comply with the regulatory environment, and the possibility that major banks have failed to supervise this part of their business, in our view, is remote.