Big investors sue banks in U.S. over currency market rigging
Former FX fund manager here. I believe the allegations.What happens is that most derivatives like options or variance swaps are tied to the daily WM/Reuters fixing in the London afternoon. There's a bunch of different types of derivatives, but the thing about most of them is they have some sort of characteristic where the price dependency gets highly nonlinear towards an expiry.So this means that someone who had a moderately sensitive position on one day might have an extremely sensitive position a few days later.To the point where it might make sense to make sure the price doesn't hit a certain level at the fixing, by doing a bunch of trades in the spot market leading up to the fix. Or conversely by making sure it does hit some level by ramping up the price.Now you might think it's all more or less a wash, because someone is gonna have the other side of that derivative, but that's not the case. The banks tend to have the same sides of the trades against their customers, because the customers are mostly all after certain payoff schemes.Apart from there being a motivation, I also believe the allegations because I've been told the actual positions on certain days. You'd have these days where nothing was happening at all, and then just before the fix the price would ramp, or the price would be moving but the graph would have a weird flat ceiling. So you'd call the brokers and ask him WTF happened, and they'd say something like "XYZ bank has a huge barrier there", or "Bank X has wants to knock out this level".It's very apparent to anyone who looks at any product that has a fixing, I've traded several (Swaps, FX, Equity Derivs). You start by thinking it's just noise and there's always someone in the office who will say that, but after a while you get suspicious of it happening at the same time, plus you have the broker rumours lining up. It would be great if the free market were restored.