Barclays fine confirmed as $150m over forex trading by US regulator
Further to our note yesterday, the New York Department of Financial Services (NYDFS) has confirmed that Barclays will have to pay $150m over misconduct in its foreign exchange activities. The fine, which also requires Barclays to fire an unnamed senior executive, is related to a computer system called "Last Look", which the bank devised to reject orders from customers that would not be profitable. This is the second fine the NYDFS has imposed on Barclays related to forex matters; the risk of ongoing fines for banks was brought up by Moody's this week, which said that Barclays, HSBC, and Royal Bank of Scotland are at high risk of more penalties.

James 'Jes' Staley, Chief Executive Officer,Investment Bank J.P. Morgan speaks at the Robin Hood Veterans Summit at Intrepid Sea-Air-Space Museum on May 7, 2012 in New York City. Getty

Barclays was fined a second time in under a year over its currency trading, bringing its total penalty to $635 million.

This time the bank was fined $150 million by the New York Department of Financial Services over the way it handled electronic currency trades for clients.

The regulator said Barclays automatically rejected clients' currency trades if they thought that they would lose money for the bank, and lied about the reasons for the rejection, often citing technical issues.

It's to do with Barclays' Last Look electronic trading protocol. This allows Barclays a window of a few milliseconds between receiving an order to make a trade on behalf of a client and executing it on the market.

If the price move within this short period lost money for Barclays, the bank rejected the trade, even it would have made clients money.

Here's the NY DFS statement (emphasis theirs):

Whenever prices within this holding period moved against Barclays and in favor of the customer beyond a certain undisclosed loss threshold, Barclays treated the trade as toxic flow. Barclays thereby evaluated and applied its Last Look rejection protocols almost entirely in reference to the profit or loss the trade would bring to the Bank. Thus, instead of employing Last Look as a purely defensive measure, Barclays instead used it as a general filter to reject customer orders that Barclays predicted, based on price movements during the hold period, would be unprofitable to the Bank.

Althought it's a smaller fine than the $485 million the bank paid in May to settle claims it, along with other banks, manipulated foreign exchange markets, it's damaging to Barclays' reputation.

The regulator is forcing the bank to fire its managing director in charge of the system and published excerpts from emails that make for cringe-worthy reading

Here's one:

On November 7, 2011, the Barclays Managing Director and Head of Automated Electronic FX Trading wrote: “Do not discuss Last Look with Sales. If there has been a spurt [in rejected trades] just blame it on the weekend IT release and say it’s being fixed.”

After years of scandal, banks are still facing probes from regulators on their conduct leading up to the 2008 financial crisis and after, particularly in the US.

At Barclays, it will be incoming CEO Jes Staley's job to make sure the legal issues the bank has faced don't derail a new strategy focused on a smaller, more profitable investment bank.

Federal prosecutors are pursuing criminal cases against the bank executives at Royal Bank of Scotland and JP Morgan for allegedly selling flawed mortgage securities, the Wall Street Journal reported on Tuesday.