Money, money, money . . .
IT looks like the work of a highly organised syndicate. But the currency manipulation exposed by the Competition Commission this week is the work of a small group of rogue traders.
George Herman, head of South African portfolios at Citadel Investment Services, said those responsible were like “a bunch of teenagers using technology to do something a little naughty”.
The traders are accused of manipulating prices and influencing market movements by colluding to withhold trades until a predetermined time in a strategy to get the best returns.
Traders have a profit target they need to reach to earn a portion back in bonuses. Participants in cartels such as those described by the Competition Commission usually operate as a tight unit with a common cause — to get rich quick.
The commission has referred 18 institutions, including three of South Africa’s big banks, to the Competition Tribunal for prosecution.
“As long as you have traders, they’re going to try and make a fast buck,” said Ismail Momoniat, deputy director-general at the National Treasury. “You’ve got to change the system because currently it’s all about their cut. The more money they make for the bank, the bigger their cut.”
An insider working for one of the banks, who could not be named in line with company policy, said the other incentive for traders was the big sign-on bonuses they got.
“They move around from organisation to organisation. This means they get the year-end bonus from the previous company, a signon bonus when they join the new company, and a year-end bonus on top of all the money they make from these collusive trades.”
A glaring aspect of the commission’s findings was the failure of senior bank management to curb rogue activities.
Compliance training, which covers local regulations as well as those enforced in the UK and US, is required for banking employees. One of the reasons for this is to make it impossible for bank staff to claim ignorance when serious misconduct is detected.
Nilan Morar, head of equities at financial services provider Purple Group, said institutions should ensure their traders had incentives to obey the law and not just make as much money as possible.
He said regulators could look at delaying the payout of bonuses. “If there are no regulatory breaches or investigations over a certain period, the money held back will clear and be given to the trader.”
Morar said withholding a portion of a dealer’s takings — perhaps 50% — could force them to comply with the law.
Momoniat said attention needed to be paid not only to incentive structures but also to the role of senior management.
The benefits the banks themselves reaped from the activities of their traders could not be overlooked.
“They [bank management] need to look at the big profit centres and interrogate what’s driving the profitability because there may be shoddy practices,” Momoniat said.
“Even if the CEO or senior management did not know, you have to look at why they didn’t know.
“Did they prefer not to put a preventive system up because it would bring up problems and they didn’t want to act on these problems?”
Makgale Mohlala, head of the cartels division at the Competition Commission, said none of those responsible for the violations in the currency trading collusion case were likely to face criminal prosecution.
“The competition amendment that calls for the criminalisation of misconduct came into effect last year so it doesn’t apply to this case. There won’t be personal liabilities and we will not be prosecuting them criminally,” he said.
As long as you have traders, they’re going to try and make a fast buck