The Last Look…
Posted by Colin Lambert. Last updated: March 1, 2022
Just how much autonomy should a trader have? I ask this question having listened to the first episode of “The Lowball Tapes”, a BBC Sounds production that interviews some of the traders convicted over Libor – it’s well worth a listen – which reminded me how much influence was brought to bear on Libor submitters.
In the Rates world there are numerous areas of the business interested in, and exposed to, the published benchmark, so there will be a degree of consultation, but at the end of the day, the decision on the rate at which an institution can borrow money surely has to be the domain of the trader on the desk? They know the market better than someone indirectly involved.
Libor submissions appeared to be by committee, and although the BBC series has yet to get into full swing, I think we all know that at some stage it will suggest that people on high in the banks pressured (or “suggested”) that submissions be adjusted to help the bank out. This has been hinted at before of course and I will leave it to the BBC to make the likely insinuations about the lack of senior accountability, but it does make you wonder how much say in the whole process the trader had. Equally, how many traders – most of whom love their job – are willing to defy a “suggestion” from a very senior manager, that they submit a false rate?
Listening to the first episode I was thinking how glad I am I used to be a spot trader. The idea of someone from an office on the top floor deciding to quote Cable in 100 to certain clients (we all know the names – they haven’t changed!) could have become a spectacle, especially for those who are afficionados of horror movies, but was in reality never likely to happen. The reason it happened in the Rates world was, I believe, because of the wider systemic issues, and, if I may get all ‘Oliver Stone’ for a second, probably wasn’t discouraged in government circles.
What I think was over-looked or down-played in the investigations, however, was the precedent it set. I have long argued that the vast majority of traders dismissed, or worse, over conduct issues, were victims of a cultural vacuum that was created in too many institutions – and that vacuum started with Libor, when senior managers got involved. Suddenly, it was OK to adjust a submission and making small but “important” adjustments where “necessary” became the cultural norm.
What are senior managers doing getting involved in the details of the dealing desk’s day-to-day tasks?
In terms of the FX scandal, traders were told they had to get more market information and, when it came to the Fix, they had to be smarter about how they managed the risk. These were often stipulations in annual reviews according to people I have spoken to who fell victim to the purge, and while, inevitably, opinions will be coloured in such matters, the bottom line is that senior managers allowed a culture to emerge that encouraged laxness and blurred the lines between what was acceptable, and what was not.
Growing up in the UK during a sustained period of union unrest, one became used to the phrase “demarcation of labour”, but there is some value in the principle – what are senior managers doing getting involved in the details of the dealing desk’s day-to-day tasks? Their job is to run the overall business and allocate resources appropriately, not to tell traders what price to quote or what information they need to do their job.
Generally speaking, my experience was a good one during my trading days – my relationship with senior managers was positive (there were one or two absolute lunatics of course who couldn’t manage a sliding door), and, within the limits set for me and my business (by those senior managers of course) we were left to our devices. Explanations were required when things went wrong and when things went right you might get a nod on the way out at the end of the day.
These times were not without influence, however, for I do recall one episode in the late 1980s when I was at my desk and a man came over and informed me (I was chief dealer at the time) that he was going to take the bank’s slot at the upcoming ACI World Congress. My only reaction, once he had left, was to ask my colleagues “who was that?” (or words to that effect).
It turned out it was someone very senior in the bank who had once, several years before, been on the money markets desk and become a member of ACI, but who hadn’t been seen on the dealing floor for the five or six years I had been there! Curiosity aroused, I looked up where the Congress was being held and discovered it was Honolulu – that bastion of the foreign exchange money markets.
It is important to remember that this happened to experienced traders, this was not in the era of ‘juniorisation’
Clearly this was an inconsequential event, but there are parallels. A senior manager trivialised what was, to that date, one of the, if not the biggest event of the year in the FX calendar, and signalled, to use the vernacular, that rather than a serious networking event with high quality panel discussions, the Congress was seen by management as a good ‘jolly-up’ – especially in Hawaii. There was absolutely no impact on the bank, the desk and the people working on it by this hijacking of our spot (each bank often only got one or two spots and they were prized) in conduct terms, but it is noticeable that ACI event attendance very slightly started to decline after that. The fact that our representative was, apparently, nowhere to be seen and came back sporting a quality sun tan, had nothing to do with it, I am sure.
To go back to more recent, and more serious, events, I don’t know whether it was panic or a political play on the part of those managers who got overly-involved in the business of the trading desk, but it does seem to me that whenever it happens the downsides outweigh the ups. It is important to remember that this happened to experienced traders, this was not in the era of ‘juniorisation’ – it is worrying to think how someone relatively inexperienced and less confident would react in a similar situation today. Luckily, I think as an industry we have learned a lot, so it is unlikely to, mainly thanks to the current generation of managers who have a more balanced view of the world, especially when it comes to how money is made.
Senior managers are a vital aspect of any organisation and their job is to establish the framework, guidelines and, importantly, limits, within which the trading businesses operate. Breach them and you have no excuse. Therefore, while I accept that the buck stops with senior managers and they need to know what is going on, they also need to know their own limitations.
What is so sad and, to my mind in many cases, wrong, is that in the case of Libor submissions and the chatroom and fixing scandals, the buck got nowhere near where it should have before it’s momentum ground to a halt. Leave the traders to do what they do best – they need a framework, not coercion.