For me there are two. Pre-hedging (front-running with lipstick) before an FX fixing window. Recall the issues years ago when banks were fined millions for sharing upcoming client fixing interest on Bloomberg chats? Its just evolved now to “matching” before an upcoming fix. I need to buy 100, you need to sell 100, we agree to “match” at the published fix rate so don’t execute anything in the fix window. Looks good on paper, less volatility.
But what if you can’t match your risk? Do you then have a good idea of potential market direction? Probably. So you could “pre-hedge” more aggressively, ramp the market up before the window calculation begins. None of that activity is to the clients benefit, they just get the higher cost.
USDRUB (Ruble) sanctions. When they came into force there was a two tier market created. Onshore/offshore and the two could not trade with each other. Onshore USDRUB via MICEX was typically cheaper than offshore. So an arbitrage in pricing that no-one could access apparently. But wait-some countries could access it-known as “friendly countries”. Kazakhstan, Armenia as examples. So offshore banks quickly put trading lines in for local banks there and soaked up the arbitrage. Millions in profit. Bloomberg ran a story about this in 2023. Ignored by the MSM. Not illegal but maybe unethical? Hmmm.
Several Prominent Themes here
-AI use in client advisory ( these new model portfolio trades for clients via platforms or in wealth management)
-Use of AI for Risk Management and Supervision - depending on the firm - delivery can be far more important to effectiveness of the controls
-One is currently going - The Indian situation with the HFT Prop trader - good probability this is widespread with regulator ability not set up to find this kind of abuse- losers the small end of town. The long standing markets practice of splitting orders/ liquidity/ venues using multiple participants while trading through 3-5 LEs for a single profit objective is not designed into enterprise coverage programs.
You know how LIBOR and FX blew up because a few players could tweak things behind the scenes? I think the next one might be around ESG. There’s so much money pouring into ‘green’ funds and bonds, but the standards aren’t clear and everyone defines it differently. Feels like a perfect setup for a greenwashing scandal, where firms oversell how sustainable they really are, and it all comes out later. I will not be surprise if I see that in the front page
Isn’t greenwashing already getting a slap on the hand? DWS fine earlier this year. But more than that, I think, is a bit politically unacceptable in the EU… there is a vested interest to keep the sustainability train going.
Scandals often come when the powers that be need a scapegoat. You know, “I’m shocked! Shocked to find that gambling is going on in here.”
