Are You Part Of A (Trading) Cartel?
At least outwardly, the giants of investment banking — the big Wall Street titans and other financial institutions (FIs) — are rivals, competing over customers, returns, trading talent, and more. But over the years there have been multiple cases in which banks have been accused, and found guilty, of colluding or price rigging in conjunction with one another. For example, in May 2021 seven FIs, including Bank of America, Natixis, Nomura, RBS, UBS, UniCredit and WestLB, were found guilty by the European Union of colluding in a way deemed to hurt EU Member states.
Three of the FIs were fined a collective total of $453 million for their part in the wrongdoing. Employees at the FIs in question had participated in a bonds trading cartel, in which traders used chat rooms to share sensitive information with one another that they could use to inform how they bid at debt auctions. The incidents took place between 2007 and 2011. This is far from an isolated incident. A decade ago, two separate lawsuits alleged that banks J.P. Morgan Chase & Co. and HSBC Holdings were manipulating silver futures by colluding and informing one another of upcoming big trades, flooding the market with a disproportionate quantity of orders
One of the largest recent such incidents was the Forex scandal in which dozens (although potentially hundreds) of traders from at least 15 banks, including Barclays, HSBC, and Goldman Sachs, participated in online chatrooms — with names like The Cartel and The Mafia — in which they discussed the volume and kinds of trades they were planning to make. This manipulation of the Forex market may well have continued for years.
Cartels In Action This kind of sharing of illicit information — frequently using electronic communications for coordinating the behavior — is frequently referred to as being a cartel. While the name “cartel” might summon up images of drug-running outfits and gangland activity, it refers to any collection of independent businesses which collude with one another in a way that manipulates prices of a product or service.
The Right Tools To Defend Against Cartels Cartels are bad news for customers, but they’re also bad news for firms. When discovered, they can result in heavy fines for the firms involved. Fortunately, this is becoming easier to do thanks to advanced tools, such as the ones we have developed at Shield, that combine boosted lexicon technologies and artificial intelligence algorithms to spot behavior suggestive that rule-breaking behavior is going on. These tools can spot a wide range of potential market abuse scenarios, ranging from collusion and insider trading to front running. By monitoring for this behavior, and making it easy to generate (useful) alerts with minimal false positives,
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