see Predatory Jews Interest Rate Swaps page

and below: RaboBank traders Libor indictment

Bloomberg ... Maybe Banks Manipulated Treasury Bonds, Too

9 SEPT 18, 2015 7:54 AM EDT

One thing we've learned since the financial crisis is that banks like to get together and rig things. At the very least, they got together and rigged Libor and some foreign exchange fixes. We know this pretty definitively because there are tons and tons and tons of e-mails and electronic chats in which bank traders talked with each other about manipulating Libor and foreign exchange rates. The FX chat rooms even have names like "the Cartel." You read the chats, and you know something bad was going on.

Which is useful, because another thing that one could, with careful attention, have learned since the financial crisis is that it can be tricky to separate illegal manipulation from legal but awkward-sounding activities. So Libor. Libor manipulation consisted of making up arbitrary numbers and passing them off as the interest rate at which banks could borrow. But Libor consisted of making up fake numbers and passing them off as the interest rate at which banks could borrow. The difference is that Libor manipulation consisted of intentionally skewing the numbers to make a bank look better or to make its derivative trading more profitable. If you didn't have the chats, you'd have a hard time distinguishing the manipulated numbers from the perfectly fine made-up numbers.

Or FX. In FX manipulation, traders took customer orders to buy currencies at a specified fixing time and then bought those currencies ahead of the fixing time, pushing up the price and allowing the banks to sell the currencies back to the customers at a higher fixing price. That sounds awful, when you say it like that. But that was actually fine! That was so fine that shortly after the big FX settlements the banks sent letters to their clients reminding them that it was fine. What wasn't fine was that the traders also shared the customer orders with each other in chat rooms with dumb names. This made it a bit easier for the banks to push up the price, though it probably didn't make it that much easier, and the banks probablydidn't make much money doing it, particularly not compared with the fines. Still, it was obviously bad behavior, as you can tell from the chats.

It seems quite plausible that the next round of big banks-rigging-things cases will be about rigging the Treasury auction market. And it seems quite likely that those cases will look a lot like Libor and FX. "As U.S. Probes $12.7 Trillion Treasury Market, Trader Talk Is a Good Place to Start," is this Bloomberg headline, and quite sensibly! It is always a good place to start, and one assumes that the Justice Department started there. 

But the way the world works is that, as soon as the world finds out that the Justice Department is investigating a banks-rigging-things case, a lot of private plaintiffs' lawyers launch lawsuits against the banks, hoping for a piece of the action. "For shareholder lawyers, Treasury auction antitrust case is next big thing," is this Reuters headline, and quite sensibly! There's a lot of money in the Treasury market, and if the Justice Department is looking at it, then the chats are likely to be quite juicy.

But the plaintiffs' lawyers don't have the chats yet. So they have to fall back on public evidence. And the way they do that is kind of weird.

Here's one of the main investor lawsuits, brought last month against a group of primary-dealer banks on behalf of plaintiffs including the Cleveland Bakers and Teamsters Pension Fund. Here's a Bloomberg article about the plaintiffs' analysis. Here's how I would summarize the analysis, schematically:

1. Banks made money on Treasury auctions.
2. Remember all those other things they manipulated?

Point 2 is, of course, a fair point, and the complaint devotes nine pages to it. The syllogism "banks manipulated things; this is a thing; therefore banks manipulated this" is not airtight, exactly, but it has a certain inductive appeal.

But I want to focus on point 1. The entirety of the plaintiffs' evidence of manipulation here is that the banks made a profit from participating in Treasury auctions that is statistically distinguishable from zero. So, for instance, the plaintiffs look at auctions of Treasury re-issues, in which the Treasury auctions new bonds that are interchangeable with existing bonds that are already trading in the secondary market. Here's the complaint:

On certain occasions the Treasury re-issues the same exact securities in a follow-on auction. Again, because the promise to be paid a dollar by the Treasury, is a promise to be paid a dollar by the Treasury, yields in a competitive auction for re-issued Treasuries should be the same as yields for the same exact thingavailable on the secondary market.

That, again, is not what the data shows. Instead, again, Defendants were able to consistently secure for themselves—despite the purported confidential, competitive auction— windfall yields/bargain prices in the follow-on auction as compared to what was being demanded in the secondary market.

And: "Across all tenors, the auction yields of reissued Treasuries were inflated in 69% of auctions (i.e., Defendants got a bargain price 69% of the time), by 0.91 basis points." For instance, in the 10-year bond, 62.5 percent of reissuance auctions resulted in a higher yield (lower price) to the dealers than in the contemporaneous secondary market, with an average higher yield of 1.75 basis points. (For the current 10-year that works out to a price that is about 0.15 percent lower than the secondary-market price.) So, statistically, the primary dealer banks got a discount of let's just say about 0.15 percent when they bought new 10-year Treasuries at auction.

Is that because they conspired to drive down the auction price? Quite possibly! But it's worth noting that dealers are supposed to make money intermediating bonds. For instance, when banks underwrite corporate bonds, they buy those bonds from the issuer at a discount to the price at which they can sell them -- even if the issuer has a liquid benchmark bond complex for comparison. (Even if the issuer is reopening an existing bond!) This is in part to pay the banks for taking risk in the underwriting, in part to compensate the banks for the work of distributing the bonds to investors, and in part to compensate the banks for all the other free work that they provide to the issuer in the hopes of winning bond deals. All of those reasons are attenuated in Treasury auctions, where the risks are lower, the distribution is easier, and the relationship is more arm's-length. Still, it would be weird if primary dealers distributed Treasuries for free. They are providing a service that the Treasury wants as part of an explicit relationship. Even when the Treasury is issuing bonds that are interchangeable with existing bonds, it should expect to pay some (implicit) intermediation fee to get those new bonds into the hands of investors. 

Now the 0.15 percent discount that the plaintiffs assert the banks get on new 10-years does seem, to my untutored eye, kind of high. Some comparisons: When Apple did a 10-year bond earlier this year, the banks bought it at a 0.60 percent discount, four times as big as the alleged discount here. But underwriting a corporate bond offering is a lot harder and riskier than participating in a Treasury auction, and you'd expect the Treasury to get a significantly better deal than Apple. Another way to compare is that the bid/ask spread on the 10-year Treasury typically runs a bit more than 1/64 of a point; a bank trading Treasuries in the secondary market would earn about 0.017 percent per trade, an order of magnitude less than the banks allegedly made on these auction trades. But of course primary underwriting generally is more expensive than secondary-market trading. 

The point, though, is that the plaintiffs here don't exactly argue that the banks made a bigger profit than they should have on intermediating Treasury auctions. Rather they say that the banks should have made zero expected profit, and made more than that. Take another passage from the complaint, this one about auctions generally (not just of re-issued bonds):

If someone gets something in an auction for a truly bargain price, they should be able to turn and sell it for a profit. That is, in fact, what the data shows occurred. Defendants were, once again, anomalously and predictably “winners” in the auction. A disproportionate number of times, yields went down for the just-auctioned Securities following the auction (i.e., prices went up) over the course of the rest of the day, or the next one. The odds Defendants by random chance (and without collusion) secured a preferential auction rate across so many maturities, across so many auctions, is statistically zero.

But you hear the same things all the time about market makers in other markets. It is a perennial topic of complaint that electronic market-makers always make money. Certainly lots of people think that they make this money by cheating, but the more straightforward explanation is that they are in a market-making business, charging counterparties a bid/ask spread to provide liquidity. You may think they overcharge, but the relevant point is that if they couldn't reliably make money in that business, they wouldn't be in the business. If banks couldn't predictably make money bidding for Treasuries at auction, they wouldn't bid for Treasuries at auction. (Of course, they are required to bid for Treasuries at auction by virtue of their primary dealer status, but that's no objection. If you are bidding for something at auction only because you are required to, not because you want to, then you have every incentive to underbid.)

Now you might argue, as the complaint does, that the only way to reliably bid less than the market price for Treasuries is by collusion. But the complaint itself refutes this. The plaintiffs have all sorts of ways of comparing the auction price to the contemporaneous fair market price. As we discussed, they compare auction and secondary prices of re-issued bonds, and subsequent trading prices of auctioned bonds; in both cases they find that the dealers paid less than the fair price for auctioned bonds. They also compare auction prices to the when-issued market, and find that "when-issued yields before the auction were consistently predicting lower yields than what occurred (i.e., they were guessing prices in the auction would be higher than they ended up being)." There is similar evidence from the futures market, and from the trading prices of similar but not identical on-the-run Treasuries. 

The plaintiffs take this as evidence of manipulation. Maybe! But what it also shows is that, if you were a Treasury dealer, you could know what the fair price was. After all, the plaintiffs claim to know what the fair price was, from lots of different evidence. But if you are a Treasury dealer, there is no reason to bid the fair price. Not because you're manipulating, but because you are an intermediary -- a dealer -- and the "right" price for you to bid is the fair mid-market price minus your fee for intermediation.

Of course, the fee for intermediation should be competitive, and in the absence of collusion you'd expect it to be competed down. But you wouldn't expect it to be competed down to zero. The U.S. equity market used to be very un-competitive, and the fee for intermediation was about 12.5 cents. Now it is very competitive, and the fee is about 1 cent, sometimes much less. But it is not -- statistically, in the long run -- zero. Intermediaries still get paid something. Electronic market-makers still, controversially, make money.

None of this means that the Treasury market wasn't manipulated. Really the purpose of this complaint is to fish for the chats: The idea is that if the complaint states a plausible claim for manipulation, the plaintiffs may get discovery, and may end up finding chats and e-mails that prove collusion and manipulation. And it's not animplausible claim: I suppose you could argue that those consistent profits are too high. The best evidence for that is probably that, as the complaint puts it, "Following the Announcement of the DOJ's Treasuries Investigation, Signs of Artificiality Dissipated," which sure is a suggestive clue that the banks might have been misbehaving and knocked it off as soon as the DOJ started inquiring.

Still, it is worth remembering that sometimes financial intermediaries are allowed, even expected, to make money. The system may in fact be rigged in a way that allows Treasury primary dealers to make a profit by bidding for Treasury bonds at auction. But that might just be how the system is supposed to work. We'll only know for sure when we see the chats.

1. They rigged ISDAfix too. And there is widespread suspicion -- and a Justice Department investigation -- about metals-market rigging. (There is also a settled case of metals manipulation, by Barclays, but that is more about one guy's manipulation than a widespread conspiracy.)

2. I am constantly quoting the proposition that Libor was "the rate of interest at which big banks don't lend to each other." It was always a survey-based number, not a market rate, and so was always in some deep sense made up.

3. It was! The U.K. Financial Conduct Authority said:

   A firm legitimately managing the risk arising from its net client orders at the fix rate may make a profit or a loss from its associated trading in the market. Such trading can potentially influence the fix rate. For example, a firm buying a large volume of currency in the market just before or during the fix may cause the fix rate to move higher. This gives rise to a potential conflict of interest between a firm and its clients.

   And, again, I recommend Dan Davies on the subject.

4. It is much easier for the Justice Department to get them than it is for the plaintiffs' lawyers, not least because cheerful and enthusiastic cooperation with the government is the main way for banks to reduce the penalties that they ultimately pay. There's a policy and everything.

5. The lawyers on this case are led by Cohen Milstein Sellers & Toll PLLC and Quinn Emanuel Urquhart & Sullivan LLP. Alison Frankel lists this case first among those brought by "some of the most successful plaintiffs' firms in the business," though there are other complaints by other big firms. Also what do you think the meetings of bakers and teamsters are like? 

6. Pages 55-63, hitting high points including Libor, ISDAfix, FX and gold. Also a chunk of page 54 is devoted to Salomon Brothers' past manipulation of Treasury auctions.

7. That is, Bloomberg shows the 2 percent of August 2025 as having a dollar value per basis point ("DV01") of $877 per $1 million principal amount, so 1.75 basis points would be worth about $1,534 per million or about 0.1534 percent of par. The comparable number for the 30-year -- I see $1,928 of DV01, and the complaint alleges an average positive spread of 2.28 basis points -- is 0.44 percent. For the 26-week bill ($49.38 DV01, 0.74bps average spread), it's 0.00365 percent, or a bit under half a basis point of principal.

8. Though not non-existent. Primary dealers are expected to "provide the New York Fed’s trading desk with market commentary and market information and analysis helpful in the formulation and implementation of monetary policy," much like investment banks do for corporate clients.

9. Separately, investors who buy corporate bonds in new issues tend to make money. I think that the right way to conceptualize this is, again, that issuers are compensating the investors for taking a risk on a new bond. You might expect something similar to happen in the Treasury market, though of course on a much smaller scale because the risk is so much smaller.

10. This is I think the right way to interpret paragraphs 131 to 132 of  the complaint:

    As seen in the studies set forth in the preceding Sections, yields within the auction systematically departed from other measurables within the marketplace. Strikingly, when Defendants were more involved in a given auction, the observed anomalies were bigger. Conversely, when Defendants were less involved in a given auction, the observed anomalies were smaller. In other words, Defendants’ level of involvement in an auction, and the level of price artificiality went hand-in-hand.

    This can be seen in the following chart, which uses a regression model to measure how correlated the amount of securities Defendants “won” in a given auction was, with respect to the size of the gap between the auction yields and the yields at the end of the auction day, after having controlled for contemporaneous market movements in the secondary market. The numbers are negative, for all the maturities. Which is to say, again, the more securities Defendants “won,” the more artificial (too high) the auction rate yields were.

    But if your model is just that bank dealers (non-collusively) charge for providing liquidity, and fundamental-investor primary bidders do not, then the more primary bidders there are, the higher the price will be. If the only bidders for an auction are primary dealers who are required to bid, of course their bids won't be that aggressive. That's not collusion, it's just how auctions work.

11. Put another way, there's no reason to expect a "winner's curse" in the Treasury market, because there's lots of data on market values.

12. Though technically the claim is that they knocked it off as soon as the press reported that the DOJ was inquiring:

    On June 8, 2015, media outlets first reported that the DOJ was investigating Defendants for their potential role in a conspiracy to manipulate Treasury auction yields. Even in the limited number of auctions since that time, a break in the pattern has emerged. With one lone exception, yields no longer retreated with the same speed they once did on auction days.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Matt Levine at mlevine51@bloomberg.net

To contact the editor responsible for this story:
Zara Kessler at zkessler@bloomberg.net

Bloomberg... Bank FX Fine Scorecard (Follow Along at Home!)

18 MAY 20, 2015 6:36 PM EDT

The foreign-exchange settlements are very hard to keep straight so I made a little scoreboard of the various fines that various banks have paid to various regulators:

I hope it's comprehensive! But I probably missed some regulator somewhere. Anyway, $10.3 billion seems like a lower bound on fines paid for FX manipulation.

That is a lot of money. Bank fines feel a bit like abstractions these days, but this is a lot of money even in context. When the U.K. Financial Conduct Authority issues its FX manipulation fines, it makes a determination of "the firm's revenue from the relevant products or business area" over the period of the misconduct. For these settlements, the relevant period seems to be March 2010 to October 2013, and the relevant revenue figures -- as calculated by the FCA -- are:

Honestly I don't know what "relevant revenue" is, so I don't know how useful this context is, but it does sure look like the banks paid much, much more to settle these charges than they made doing the bad stuff.

More context. The U.S. Office of the Comptroller of the Currency puts out a quarterly report on bank trading revenue. From the OCC's numbers, JPMorgan seems to have paid fines equal to just over half of its own total FX trading revenue for the two-and-a-half year period it was involved in FX manipulation. If you use the rule of thumb that half of revenue goes to compensation expense, then JPMorgan would have been better off not having an FX business for those years.

Or some more context: JPMorgan's $1.9 billion in fines seem to be the work mostly of one trader. Oops!

So it's a lot of money. The fines accompany criminal guilty pleas for Citicorp, JPMorgan, Barclays, Royal Bank of Scotland and UBS. It is easy to say -- and I have said -- that those guilty pleas feel likecuriously weightless things, a cost of doing business rather than a serious deterrent. And today's pleas come with all of the necessary waivers to allow the banks "to continue managing mutual funds and raise capital quickly," meaning that they won't have too many consequences beyond the fines. But the fines are really big! If you are a manager or shareholder of a bank, you would strongly prefer not to pay these fines. But, yes, I know, I know: They keep paying more of them. 

The settlements today, with the Department of Justice and the Federal Reserve and the New York Department of Financial Services and also a few others, are mostly for an antitrust conspiracy conducted in electronic chat rooms where traders from different banks would meet to discuss their client orders. We talked about this six months ago when most of these banks settled similar charges with other regulators. Ordinarily here I would provide you with an assortment of dumb trader quotes, but since I did that six months ago I will skip it today. Also Benjamin Lawsky of the New York Department of Financial Services is preternaturally talented at selecting, boldfacing and underlining dumb trader quotes, so just go read his news release. Just running my eyes down the bold underlined bits I get:

"the 'Cartel'"
"mess this up and sleep with one eye open at night"
"building ammo"
"We gonna help u."
"yes, the less competition the better."
"hard mark up is key . . . but i was taught early . . . u dont have clients . . . u dont make money .  . . so dont be stupid."
"if you aint cheating, you aint trying."

So there you go. Bad chat rooms, bad nicknames, bad spelling, bad quotes.

We discussed the actual conduct at some length in November; I thought it was bad, but not as meaningful as it sounds. The banks agreed to do lots of trades with lots of clients at a fixed price at a fixed time. That created a lot of risk for them, which they managed by trading ahead of the customer fixing. That is a totally normal practice, and one that makes markets more efficient, though it might at first glance look a little fishy. They also got together in chat rooms to, essentially, lay off some of their client risk to one another prior to the fixing. That laying off of client risk, again, looks a bit conspiratorial, but it probably made markets more efficient, and is not obviously bad or illegal. Then they went beyond that efficient laying off of risk, trying to move the price in their favor. They seem to have made some money doing this, at the expense of their clients, but my suspicion was that they were "tinkering at the edges of real supply and demand," optimizing how they made money trading their combined customer order book rather than truly rigging the FX market. 

This is different from the Libor scandal, where banks just made up numbers to help themselves, unconstrained by supply and demand. But it's also different from a classic antitrust conspiracy, where all the sellers of a product conspire to make the product more expensive. These banks were not producing euros and conspiring to drive the price up. They were intermediaries between buyers and sellers of euros, and all they could do was conspire to make some extra money trading on whichever side predominated. But compared with classic antitrust conspirators, their market power was very limited, and they couldn't systematically push exchange rates one way or the other.

Dan Davies also wrote about the chat rooms in November, and if you read one thing about the foreign-exchange scandal it should probably be his post:

I think there’s a danger in viewing everything through the prism of previous scandals. Although there was some behaviour that was clearly on the other side of the line, the regulators also made clear that lots of the practices involved were not intrinsically criminal; this was an investigation into a grey area, not a straightforward case of lying. 

The FX rigging stuff was bad, but it was bad at the edges rather than at its core, and a lot of the most offensive-sounding things -- trading ahead of client orders! sharing client orders with other banks! -- were hardly bad at all.

Today's pleas don't really add much to our understanding of the antitrust stuff. But they also address some miscellaneous non-antitrust misconduct. Hilariously, the Justice Department plea agreements require the banks to send their customers sad little "Disclosure Notices" that say, in part:

The purpose of this notice is to disclose certain practices of [Bank] and its affiliates (together, “[Bank]” or the “Firm”) when it acted as a dealer, on a principal basis, in the spot foreign exchange (“FX”) markets. We want to ensure that there are no ambiguities or misunderstandings regarding those practices.

To begin, conduct by certain individuals has fallen short of the Firm’s expectations. The conduct underlying the criminal antitrust charge by the Department of Justice is unacceptable.

Imagine how hard the banks negotiated to get that form to say "conduct by certain individuals has fallen short of the Firm's expectations." It might as well say "a few bad apples ruined it for the rest of our good hard-working bankers." (As several bank executives did.)

The disclosure notices give limited space to the antitrust stuff, presumably because it's hard to explain in a short space. They spend most of their time on one or more bullet points about non-antitrust violations of the general "ripping customers off" variety. For instanceCiti will be telling its customers that it: 

• "added markup to price quotes using hand signals and/or other internal arrangements or communications,"
• "worked limit orders at levels (i.e., prices) better than the limit order price so that we would earn a spread or markup in connection with our execution of such orders," and
• "made decisions not to fill clients’ limit orders at all, or to fill them only in part, in order to profit from a spread or markup in connection with our execution of such orders."

Ehhh? From the little summaries in the notices, it is hard for me to tell exactly how bad this stuff was. The hand signal stuff, for instance, is spelled out a bit more in UBS's plea:

On occasion, UBS customers requested that a UBS FX salesperson provide them with an “open line” while the salesperson consulted with a UBS FX trading desk to obtain a price. Certain customers requesting an “open line” had an expectation that the price they heard was indeed the “trader price” and therefore did not include any sales markup. Certain customers on such an “open line” sought to be privy to discussions regarding price between the UBS salesperson and the trader working on the desk relevant to the customers’ specified transaction currency. Such customers sought an “open line,” in part, to ensure that they could hear the price quoted directly by the trader—the “trader price”—rather than receiving a price quote that included a sales markup.

Prior to, and continuing after the NPA, certain UBS FX salespeople and traders used hand signals during certain customers’ “open line” calls in order to conceal from customers that they were being marked up. For example, unbeknownst to the customer, a salesperson would hold up two fingers to signal that the trader should add mark up of “two pips” to the quoted price.

Ahahaha what charming rogues! This is: Dishonest! Bad! The sort of thing a client shouldn't like! But it does seem like it's in the category of what the Wall Street Journal last week called "Common Sales Tricks." It's a trick all right! But it's, you know, a sales trick. It's notfraud. The client isn't expecting UBS to tell him the true objective price of the currency. He's expecting UBS to tell him the price that UBS is willing to trade at. He just wants the price that UBS's trader is willing to trade at, not filtered through UBS's salesman. The client thought he was clever, cutting out the filter of the salesman. But the salesman was even cleverer, and pre-filtered the trader.

Ben Lawsky's news release puts it well:

FX Sales employees would determine the appropriate mark-up by calculating the most advantageous rate for Barclays that did not cause the client to question whether executing the transaction with the Bank was a good idea, based on the relationship with the client, recent pricing history, client expectations and other factors.

As one FX Sales employee wrote in a chat to an employee at another bank on December 30, 2009, “hard mark up is key . . . but i was taught early . . . u dont have clients . . . u dont make money .  . . so dont be stupid.”

If you were to ask me to explain the financial services business while standing on one foot, I would say unto you: "Price things at the most advantageous rate for you that does not cause the client to question whether executing the transaction with you is a good idea, this is the whole business, the rest is commentary." This is the problem? The problem is that banks charged clients as much as they could get away with? That is literally capitalism. 

I don't really know what to tell you. There is some genuinely bad stuff here, but it does not feel like we have any reasoned system for evaluating and weighing and punishing the bad stuff. Bank scandals are all one size: Everything is Bad, but no one wants to think about How Bad. Everything is an indictment of bank culture, and anything that any bank does is added to a list of misdeeds that starts in the financial crisis. There's no effort to evaluate how much harm any particular conduct does, or to correlate that harm with the punishment. The penalties, in FX as in Libor, seem to be indexed to how many bad chat messages you sent rather than how much harm you did. These cases lump together cartel price-fixing, and sensible risk management, and failures of best execution, and common sales tricks, and just plain charging as much as the market will bear. Lawsky says that Barclays "engaged in a brazen ‘heads I win, tails you lose’ scheme to rip off their clients." That's what you say about any misconduct, when you don't care what the misconduct was. It doesn't describe the FX scandal at all. 

But of course today's action isn't about FX manipulation. After all, Barclays and UBS are paying Libor-manipulation fines to settle their FX cases. No bank scandal can stand on its own any more; each is added to all the others. The crime that has everyone outraged here, and that has led to record-breaking fines, is not fixing FX rates in chat rooms. It's that the banks that did that also did all the other stuff. We're past the point that anyone cares about the details.

1. Sources: 

   • The November 2014 Commodity Futures Trading Commission settlements with five banks, and today's settlement with Barclays. (Not shown: Today's other CFTC settlement with Barclays, for ISDAfix, which is different.)
   • The November 2014 Office of the Comptroller of the Currency fines against three banks.
   • Today's Justice Department guilty pleas from five banks.
   • Today's Federal Reserve fines against six banks.
   • Today's New York Department of Financial Services settlement with Barclays for a fine and the dismissal of eight employees.
   • The U.K. Financial Conduct Authority's action against five banks in November, and against Barclays today.
   • The Swiss Financial Market Supervisory Authority action against UBS in November.

   In a few places I converted pounds and Swiss francs myself.

2. I'm counting $263 million of Libor-manipulation fines in this total because clearly the Libor fines today against UBS and Barclays were not actually for Libor manipulation, but for the foreign-exchange stuff. The FX stuff caused theDepartment of Justice to tear up UBS's and Barclays' non-prosecution agreements for Libor and fine them an extra $263 million, so I'm counting it here. I'm not counting other manipulations here, like the previous Libor fines, or today's Barclays ISDAfix fine.

3. It's in paragraph 5.5 of Annex D of the respective Final Notices, e.g. this one for Barclays:

   The Authority considers revenue to be an indicator of the harm or potential harm caused by the breach. The Authority has therefore determined a figure based on a percentage of Barclays’ relevant revenue. The Authority considers that the relevant revenue for the period from 6 March 2010 to 15 October 2013 is £602,000,000.

   There does not seem to be any further explanation of how it got that figure.

4. That is revenue for JPMorgan Chase Bank NA, not for the holding company; see, e.g., table 7 here. I suppose the holdco FX trading revenue would probably be more. According to the Justice Department, JPMorgan "was involved from at least as early as July 2010 until January 2013," so I'm using 3Q2010 through 1Q2013 numbers.

5. Of course, if you use that rule of thumb, the traders themselves have different incentives.

6. I mean, not really. That Wall Street Journal article only attributes today's $892 million to the one guy, though I assume that the November fines relate to the same conduct. Also if you read the JPMorgan plea agreement it mentions salespeople doing the same bad stuff as the other banks admitted to, so it's probably not literally all the one guy. Still, all in all a bad day's work for that guy.

7. Or there's this, from Dan McCrum at FT Alphaville: "The FT’s running total of legal fines and settlements paid by banks to US regulators since 2007 now comes to $155bn," or $53 million a day for eight years. 

8. Incidentally, the Justice Department announced "parent-level guilty pleas" from the big banks, but Citi's guilty plea is from Citicorp, which is not the public-company parent. Similarly with RBS. Others are genuine parent-level pleas. I don't know what's going on here. Maybe Citi cleverly switched out its plea agreement when the DOJ wasn't looking?

9. Barclays did all of its settling today, so it has separate CFTC and FCA settlements today.

10. As Euromoney puts it, "The fix is a product that is logically not a profitable product unless it is manipulated."

11. It's Attachment B to most of the plea agreements, e.g. this one for Citi. Alterations in the text are mine. Here's the text of the Citi plea agreement requiring it to send out the notice:

    On a date not later than that on which the defendant pleads guilty (currently scheduled for Wednesday, May 20, 2015), the defendant shall prominently post on its website a retrospective disclosure (“Disclosure Notice”) of its conduct set forth in Paragraph 13 in the form agreed to by the Department (a copy of the Disclosure Notice is attached as Attachment B hereto), and shall maintain the Disclosure Notice on its website during the term of probation. The defendant shall make best efforts to send the Disclosure Notice not later than thirty (30) days after the defendant pleads guilty to its spot FX customers and counterparties, other than customers and counterparties who the defendant can establish solely engaged in buying or selling foreign currency through the defendant’s consumer bank units and not the defendant’s spot FX sales or trading staff.

    Oddly, UBS's plea doesn't seem to involve a disclosure notice, though the plea itself mentions the same sort of conduct.  

12. Seriously how bad is this? Like obviously the client is expecting an un-marked-up price, and so thwarting his expectations seems straightforwardly dishonest. (In some cases some banks seem to have explicitly denied that they were adding a markup, instead of just implying that by using open lines.) So that's bad. 

    But at the same time, like, the whole point of a salesman is to help a trader understand how aggressive she should be in pricing for a client. Some clients will do everything in competition and fight for every last basis point. Some clients will take whatever price the bank gives them. The salesman tells the trader which clients are which, so the trader knows how to price trades to win the aggressive ones and make money on the complacent ones.

13. To be fair, as I've said, that seems more reasonable in an antitrust conspiracy case than otherwise. The crime here really was sending messages in a chat room! Called "the Cartel"!

14. Lawsky:

    Indeed, in a fair and functioning economic market, a business takes on risk in the hopes of earning a profit. However, Barclays’ traders coordinated with other banks to help remove that risk and instead just take profits at the expense of their clients. In other words, it was a “heads I win, tails you lose” trading system for Barclays.

    But, first of all, Barclays was a service provider, not a pure market participant: It was supposed to make a profit on executing client trades. Clients expected it to make a profit. This is like saying that the grocery store has a "heads I win, tails you lose" trading system just because it charges a markup on groceries. It's supposed to charge a markup!

    Second, de-risking the fix (by trading ahead of it) probably was desirable, and not illegal. Third, the banks in the chat room did sometimes lose money on it, and I have serious doubts that they could ever have entirely de-risked it. "Heads I win, tails you lose" is just a standard part of the prosecutor's rhetorical arsenal; it makes no sense here.

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To contact the author on this story:
Matt Levine at mlevine51@bloomberg.net

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Zara Kessler at zkessler@bloomberg.net