The Last Look…
Posted by Colin Lambert. Last updated: May 22, 2023
There are, inevitably, legal niceties and technicalities involved that mean the outcome of the case remains unclear, however reading the judge’s Opinion over the Currenex “privileged access” case, one cannot help but feel that reputational damage has been done to the platform by the judge’s thoughts.
In typical legalese there are caveats and other ambiguities in the document, but for the FX industry, the crucial questions have been answered. A US judge believes that there is plausible argument that Currenex did grant special access to certain LPs, it also provided HC Tech with administrative access that enabled it to see the entire order book and other participants’ activity. More seriously, the judge is also of the opinion that the platform failed to disclose these actions.
I use the phrase “more seriously” because in the narrower context of the FX world, this puts Currenex – and potentially the other defendants – in breach of the FX Global Code and its demand for honesty and transparency. It should be noted that the Code was not in existence for much of the time the alleged activity took place, but not all – and to have a major market participant flagrantly breach the Code’s guidelines is not a good look for the firm, the Code itself, or the industry as a whole.
There is also the challenge of increasing buy side adoption – one of the key ambitions for the Global FX Committee. Buy side firms considering signing up for the Code may look at this and say “well if a signatory can ignore the Code, why should we bother?”
Going back to the platform, a constant element of the platform world more generally is “briefing against”, whereby one or another venue is accused of some miscreance or another. Generally it is very minor – how they disclose their volume data for example – but on occasion it has been more serious. More often than not, however, there is no way to prove any allegation.
Now, however, one of the regular themes for those hinting at dark arts, has been found, in the opinion of a judge at least, to have grounds. I have already had one or two obscure hints that the practice has been in operation at other venues, however if I am being brutally honest, I think this is a Currenex problem only. Speaking to people at other venues most had a panicky few weeks when the allegations first surfaced, hoping against hope that their firm had no skeletons in their closet, but were relieved investigations found nothing.
Another reason for my thinking it is a localised issue, if indeed the judge’s opinion is the foundation for a decision further down the line in this case, is the number of senior managers at other platforms who observed it was a good way to get other LPs offside, because, in the words of one “the data will pretty quickly show something is up”.
That latter comment is borne out by information in the updated claim from XTX Markets, which clearly thought that something strange was going on, because its usually very successful market-making business was considerably less successful on Currenex than on other ECNs and platforms.
The big concern is if the Code takes a hit from this case, and becomes seen as what many feared all along – a worthy, but toothless, document that participants can ignore at will.
There is little doubt that the judge’s opinion is a blow to Currenex and, possibly, to other defendants, but the case still has to reach a final conclusion. That said, the platform is going to be operating at a disadvantage going forward when it comes to winning new business because it only has an “under new management” response to competitors’ inevitable claims of (historical) dirty tricks.
This makes it harder for State Street to sell the concern, if indeed it wishes to (and that most unreliable source, the rumour mill, says it has wanted to for some time) and harder for it to build out the business in what remains a very competitive arena.
For the other defendants the outlook is probably less grim. State Street Global Markets seems to be in the clear in the US at least, although there may be UK-based legal action on the horizon if the Plaintiffs which to go that route, while Goldman Sachs is likely to point to the actions of previous employees and a claimed ignorance that the access was indeed “special” and not generally available.
HC Tech is an interesting one, because other platforms will look at this case and point to their lack of a policy allowing the firm special access, therefore it can carry on being an LP as it has previously. That said, few, if any, will believe its admin log-in was anything other than a special policy for that firm, or that it didn’t realise what was going on. The allegation is, and the judge backs this, that firm knew full well it had access to information it shouldn’t have had, and as such its reputation has inevitably taken a hit from the judge’s opinion.
The real question will be whether it cares, for the only likely impact on its business is likely to be in the bilateral space, which, while it is clearly the dominant sphere of activity in the FX markets, is not one the firm has particularly targeted.
Overall, for the FX markets this remains a potential black eye, but not an existential threat. The claims made by the Plaintiffs are “plausible” (a word the judge uses a lot in the Opinion) but even if proven, likely linked to only a very small subset of the industry.
The big concern is if the Code takes a hit from this case, and becomes seen as what many feared all along – a worthy, but toothless, document that participants can ignore at will.