Pensions & Investments: FX scandal’s lessons for asset owners By Peter Ahlin & Luke Zubrod August 14, 2015 “The foreign exchange manipulation scandal involving major global banks demonstrates that at their core, currency conversions are not merely operational processes. They are significant drivers of value that must be carefully managed. Pension boards and investment managers should undertake to ensure their FX spot execution practices are designed to preserve and protect this value.”Read More

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I hope you’re hungry, because Bloomberg is serving up the next financial scandal. Last summer we learned about LIBOR manipulation, and how various panel banks had attempted to nudge the daily LIBOR fixing up or down with contributed rates that were “suggested” by their trader-friends, who would benefit from the resulting small directional movements. By all accounts, the rate scandal was a very big deal, shaking faith in over $300 trillion in linked financial instruments, spurring numerous investor lawsuits, and leading to The Wheatley Review, with its call for overhauling the structure, ownership, and oversight of this benchmark interest rate. If you thought it would be hard to imagine a bigger scandal, then apparently we all just lacked imagination. The LIBOR scandal is but a mere Hors d’oeuvre, compared to the enormously large feast that is the fixing scandal in…

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Is it scandalous? Yes. Should you be outraged? Absolutely. Were you economically harmed? For most hedgers, the answer is not likely. We’re talking, of course, about the LIBOR fixing scandal that has ensnared Barclays, and may very well indict other banks before all is said and done. Over $350 trillion worth of financial contracts are tied to LIBOR, so it’s not a stretch to say a scandal like this could shake the very foundations upon which modern capital markets are built! And just like an earthquake’s destructive power is measurable, on a 10-point scale from micro (1) to massive (10), this scandal, too, will be judged accordingly. But so far, it’s about a “2” – generally not felt, but recorded, for the majority of market participants who were hedging. While that could change with aftershocks (and there will be aftershocks,…

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