By Martin Tillier
Bob Diamond of Barclays (BCS) is the latest CEO of an international bank to be hauled before a government body to explain and atone for the sins of employees. He has been forced to resign as details emerge of what seems like a price fixing scam relating to LIBOR.
Diamond spoke of the “reprehensible behavior” of a group of traders. My reaction, as somebody with twenty years in international financial markets, is a resounding shrug of the shoulders.
"Plus ca change, plus c’est la meme chose," or the more things change, the more they stay the same.
When I started in the London Foreign Exchange market in the 1980s it was virtually unregulated. Questionable practices such as ‘front running’ (buying or selling for yourself before executing a large customer order) were simply seen as something everybody did. Like steroid use in baseball in the 90s there was no law against it, the rewards were huge, and it seemed that everybody was doing it. I remember when insider trading became news in the stock market. Foreign Exchange brokers and traders laughed. For us, information was power, and using it was what we did.
As scandals surfaced in other markets through the 1990s attempts were made to regulate FX along with everything else. The problem is that. once a culture of rewarding short-term profit, however it is achieved, is established, it is hard, if not impossible, to break.
The unwritten rule became: Don’t get caught.
Stories were rife of ingenious schemes to coordinate buying and selling amongst big players to move markets and other shady practices. Whether they were true or not is irrelevant. The fact is that the market greeted them with a collective yawn. It was just assumed that they were happening.
After leaving the market in 2002 I naively thought that, as a result of computer technology, improved access to information would eliminate the ‘reprehensible behavior.’ With each new scandal involving traders I realize that I was wrong. While the likelihood of getting caught has increased, to many traders the potential rewards still make it worth the risk. The resignation of Bob Diamond is in many ways regrettable, but it gives me hope for the future.
The people best positioned to regulate markets are those that are in them, and change must come from the top. By doing the honorable thing, Mr. Diamond has forced other CEOs to be accountable. Any firm with a trading arm needs to start investigating profits with as much energy as they do losses, and punishing, rather than rewarding, those who break the rules. Until this becomes the norm we can expect more scandals and more of a workout for my already weary shoulder shrugging muscles.