The Last Look…
Posted by Colin Lambert. Last updated: December 11, 2025
As someone who has argued pretty much from the start that Mark Johnson’s conviction was wrong, it comes as something of a relief that the right decision has finally been arrived at – even if it is eight years too late – but does the appeals court decision clear up some crucial issues for the broader FX market, specifically around pre-hedging, or hedging ahead of the Fix?
It is good that a senior US court has finally called out the government’s actions in bringing this case – while the focus is on the “weak” nature of its argument when it comes to “misappropriation”, it could also have highlighted the changing nature of the government’s arguments, not least when, during the first appeal, it accepted the basic premise that it was impossible to buy GBP 2.25 billion in one minute, which was really the basis of its entire case in the jury trial.
For all the legal technicalities involved in the overturning of the conviction, the reality is, it was wholly based around how such a large trade should be executed around a benchmark fix, and as I have argued from the start, problems involving the WM Fix in 2011 played a major role – not least how too many want to actually trade what was, and remains, a reference rate. Effectively when, at the first appeal stage, the government accepted that the deal could not be executed in one minute, this case should have been thrown out, but of course legal matters are never that simple.
In the Opinion from the appeals court overturning the conviction, the judges state, “A dealer in a fix transaction must first buy sufficient currency to fulfill the order. Ideally this is done slowly, in the several hours leading up to the transaction. This accumulation of the currency in anticipation of the fix is called “pre-hedging,” and it helps protect against last-minute spikes in the price of the currency.”
It may only be a nuance, but some will find it troublesome that the judges refer to what the Global FX Committee terms “hedging ahead of the fix” as “pre-hedging”, a subject still very much up in the air in terms of how it is viewed through a regulatory lens. Indeed, the judges in their Opinion also state, “The line between pre-hedging and trading ahead is, however, necessarily blurry because dealers simply do not know how many pounds, for example, they must buy to fulfill the client’s order until they see the final fix price.”
Putting aside the erroneous view that dealers don’t know how many they have to buy or sell until the Fix is published, the very fact that there is a “blurry” line remains a concern – specifically is this statement strong enough to put the US government off pursuing a similar case? Hopefully it will be, thanks to another line in the Opinion, “…pre-hedging and trading ahead is how banks profit and manage their own risk in FX transactions where they do not charge a commission.”
At first glance, the Opinion seems to support to concept of pre-hedging (or trading ahead of the fix), but it needs to be remembered that this is likely the case only with full disclosure ahead of time. Many in the industry sit behind their generic disclosures for different aspects of the business and pre-hedging is one such area, but it is notable that in the Opinion, the judges observe that Johnson did clearly explain to Cairn Energy’s advisor, Rothschilds, that HSBC would trade ahead of the Fix, while trying to keep the market in control. This explanation was clear and specific in how the trade would be executed and not a generic disclaimer, so care still needs to be exercised when considering pre-hedging.
Ultimately, the Opinion and throwing out of Mark Johnson’s conviction is a good thing for the industry, and, naturally for the man himself. Nothing can take away the stress of the last nine years, but at least he will be able to go back to leading a “normal” life, without an incorrect conviction representing roadblocks in so many directions.
This makes a clearer determination than that issued on the practice by IOSCO critical, especially given how pre-hedging is in danger of becoming a virtual tennis ball played between IOSCO and the GFXC
We would be wrong, however, to think that this “solves” the issue of pre-hedging, for there have been corporate convictions, not least in Australia, over the practice, if not individual. Indeed, it is notable that the minutes for the FX Joint Standing Committee’s legal sub-committee meeting in London in March, states, “…members discussed concerns over what constitutes market abuse, specifically in relation to pre-hedging”.
Equally, the main JSC meeting minutes discussed the WM Fix, stating, “There had been a notable increase in flow around the Fix, in particular at month/quarter-end. The Committee discussed the potential impacts of the Fix on market functioning and how those impacts could be exacerbated in a stress. There was a range of views on the benefits of the Fix to end users. Committee members also discussed the challenges of moving away from the Fix given that many client mandates dictate its use.”
None of this tells me we are comfortable as an industry around the issue of pre-hedging, or indeed hedging ahead of the fix, although there seems less concern around the latter. This makes a clearer determination than that issued on the practice by IOSCO critical, especially given how pre-hedging is in danger of becoming a virtual tennis ball played between IOSCO and the GFXC, both of whom seem to be waiting for the other to actually make a determination.
It is hard to still view Mark Johnson’s original conviction as anything other than the fulfilment of a need on behalf of the US government to have a “scalp” for the misdeeds of other bankers that led to the GFC. That fulfilment has been lost, albeit under a very different administration, but it does not mean that people in our business should not exercise extreme care, especially when it involves something that remains unresolved from a regulatory perspective.
