HSBC Currency Traders Got Greedy on Christmas
I used to trade FX. With this bank as well, though I didn&#x27;t know these two guys.<p>So there&#x27;s two ways to buy something: agency or principal. If it&#x27;s agency, you say to a guy &quot;hey, go and buy me some widgets and I&#x27;ll pay the amount and you&#x27;ll get a little fee&quot;.<p>If it&#x27;s principal, you say &quot;hey, make me a price that you want to trade at, and we&#x27;ll trade, and how you make that profitable for you is your own problem.&quot;<p>What is front running? Generally, it&#x27;s where you&#x27;re the agent, but you use that fact to scoop yourself some widgets before you do the trade for the customer. Now naturally, even if you are not literally executing an order for a client, that flow information is useful to you. For instance you might guess all the clients are spooked because of some news, and after two of them call to do the same trade, you guess they&#x27;ll all do so.<p>3&#x2F;4 pm fixing question. Actually seems a reasonable suggestion to do it at the less liquid fix. A lot of derivatives are fixed at 4pm, and there may well be some guy out there with a strong interest in moving it. I recall the price action at 4pm being very odd on many, many occasions.<p>Anyway, what&#x27;s confusing to me is why didn&#x27;t Cairn just get a firm price from HSBC? You can phone a guy and ask for a few billion if you like, people do it all the time. Alternatively, anyone can get an unknown execution price; the banks provide a GUI to everyone who wants one, and you can click the thing until you&#x27;ve got your amount done. The market won&#x27;t run out of GBP.<p>What they seem to have done is give a licence to HSBC to trade their order in a way that was bound to create an unequal conflict of interest. The bank can always make it profitable for itself, because they&#x27;re in control. The customer is bound to be disappointed when they have both an unknown price and price impact against them.<p>It&#x27;s possible that since Cairn would be a &quot;real money&quot; customer things are not quite like when I was a customer. Hedge funds are called &quot;leveraged&quot; customers, and the sales people tend to be different, with a different focus. The FCA might also be taking a view that real money guys need better protection than speculators.<p>I definitely wouldn&#x27;t have called in to do a single massive trade. I&#x27;d have gotten on the GUIs an clicked my way through, with an uncertain outcome, split across various banks and over a few days. It&#x27;s not as if the profits from selling a business unit will be lost by the currency move between the sale and the cash disbursement to the shareholders.<p>Agree that you can&#x27;t lie to the client about what you&#x27;ve gotten up to. That part is undeniably bad.