Phillips Gets Probation for FX Barrier Hit

Neil Phillips, former CEO of hedge fund Glen Point Capital, who was convicted of market manipulation involving a USD/ZAR FX barrier option that he targeted on Boxing Day 2017, has avoided jail, instead being sentenced to two years’ probation by a New York judge as well as a $1 million fine.

US District Judge Lewis Liman decided against prison time for Phillips due to the identity of the victim of the crime, Morgan Stanley, saying the bank was a sophisticated FX market player, who could have taken other steps to minimise its risk, and at no time requested restitution from Phillips.

Although the judge found Morgan Stanley the victim, Phillips did not buy the 12.50 USD/ZAR knock-out barrier option direct from the bank, instead going through Glen Point’s prime broker, thus, at no time could he have directly lied to the bank. During the trial, Phillips argued that barrier-chasing was a normal practice in the FX market, and that the writer of the option, in this case Morgan Stanley, would also have been trading in the market ahead of the barrier, but with the intention of it not being taken out.

Phillips was convicted by a jury and lost an appeal over the conviction, sold $725 million in USD/ZAR on Boxing Day, and on chats with executing dealer Nomura Singapore, made it clear he needed a print below 12.50. As was revealed at the trial, Morgan Stanley bought $560 million in defence of the level, probably at lower levels than Phillips started his selling.