What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're talking about a recent development in the european investment banking industry that shook the financial press. The european commission, which is the executive branch of the european union, recently announced massive fines for five of the biggest investment banks in europe. The european commission is in charge of enforcing all european union laws, including many financial and securities regulations, the feinstein levy, totaled, 261 million euros, that's a significant fine. Even for investment banks.

The five banks that were fined were ubs, barclays, rbs, hsbc and credit suisse. These are five of the biggest investment banks in europe and they dominate the london and european finance sectors. The crime they committed was possibly even more surprising than the pervasiveness of the criminal activity they have been running in the european commission's words. A foreign exchange trading cartel by colluding with each other to plan their forex trades.

They exploited their unfair advantage to extract money from other participants, including hedge funds, asset managers and other multinational companies. In this video we'll dive deep into what this cartel did, who ratted them out and what it all means for foreign exchange markets, foreign exchange or forex trading - involves the trading of different currencies and is done on a massive scale. Every single day companies that do business across national boundaries, trade forex to exchange international revenue to their home currency, for example, forex trading - is also done by traders, arbitragers and banks to manage differences in interest rates in different countries. If interest rates rise in one country more than another, then the exchange rate between the currencies of the two countries will adjust the currency of the country, with the higher interest rate will appreciate to reflect the fact that lenders can make more money in that country off The higher interest rate with so much money changing hands across different currencies for business purposes and not just trading purposes.

The forex markets are incredibly large. The forex cartel involved the trading of the so-called g10 currencies, which are the most significant and frequently traded currencies in the world. They include the us dollar, the british pound, the euro and several other currencies. When multinational companies exchange large sums of foreign currencies, they almost always do so through professional forex brokers.

That mainly means investment banks such as the five that were fined by the european commission. These five banks coordinated their forex trading strategies to maximize their own profits, rather than act in the best interest of their clients. They even maintained a professional online messaging system called the sterling lads to exchange their training information with one another that allowed them to make informed decisions based on their pooled information about what is happening in the markets. One particular strategy that i use is something called standing down.

This strategy involves coordinating trading activity so that one bank's trades don't adversely affect on others. For example, if two banks both want to buy large amounts of the same currency, they might coordinate, so they aren't both buying it. At the same time, this would give the illusion to the rest of the market that there isn't as much buying demand from large institutions as there actually is. The european commission was tipped off to this forex trading cartel by ubs, who itself was a participant in the cartel ubs submitted an application under the eu's leniency notice, which offers reduced penalties in exchange for reporting infringements in the law.

Because of this ubs had a 100 reduction in its fine. In other words, they were the so-called rat of the forex trading cartel. Most of the other banks also received leniency reductions for cooperating with the ensuing investigation. Barclays received 30 rbs received 50 and hsbc received 15.

Each of those three banks also received 10 of additional reductions for settling with the commission. Credit suisse was the loan bank that did not receive any reduction in fines because they did not cooperate with their investigation. The cartel activities of these five banks is harmful for the foreign exchange markets and therefore cost the general public. It may not seem like these activities harm anyone, because it's hard to pinpoint any one victim, but that's because the unfair profits that they extract are obscured by market mechanics or spread out across many people.

These banks do business with big money managers such as pension funds. It's entirely plausible that the cartel was illegally extracting money from a teacher's pension or a firefighter's pension via foreign exchange trading in markets like foreign exchange trading, is almost always a zero-sum or even negative sum game, meaning that if one trader makes money off a trade, there Must be someone on the other side of the trade who loses the same amount? The trading profits can't come from nowhere add on transaction expenses, from the exchanges, clearing houses and brokers, and it's frequently a negative sum game. Unfortunately, but possibly not surprisingly, this is not the first time that the european commission has busted trading cartels. In fact, this is their 37th settlement decision involving cartel.

Since 2008., ubs, barclays, rbs city and jp morgan settled with the commission for colluding using private chat rooms during the period from 2007 to 2013.. They called these collusion chat rooms names, like quote the three-way banana split. Unquote that settlement happened back in 2019 and, like the most recent case, ups avoided all fines by reporting the cartel the fines for the rest of the banks involved totaled more than a billion dollars. In those cases, the banks shared sensitive client information like what their clients outstanding orders were, what their open positions were and other detailed and planned trading activities.

Also, in 2019, the european commission busted barclays city, jpmorgan, mufg bank and rbs for colluding in the forex markets. For the same thing, the banks operated chat rooms that they named quote the essex express and the jimmy unquote as well. As quote the semi-grumpy old man. Unquote.

The first chat room was named, the sx express and the jimmy, because all the traders involved lived in sx, except for one named jimmy, and the members would meet on a train to london, big banks. Reading the markets to extract unfair profits is a chronic occurrence with both the european and u.s investment banks. According to reuters, they have been fined a total of more than 11 billion dollars since 2013, when the sec and other regulators first started alleging the rigging. Whenever these allegations come up, they frequently try to isolate the wrongdoing to individuals within by blaming just a few bad apples.

They deflect some of the blame in negative publicity. In the most recent case, rbs tried to deflect blame by saying that the misconduct with the cartel was from more than a decade ago, involving a former employee and that their company culture has since changed. Another example of big banks rigging the markets includes the u.s energy markets in the early 2010s jp morgan established a subsidiary called jp morgan ventures, energy corporation. That company acted as a middleman purchasing electricity from power plants and selling it to utility companies.

Utilities purchase the energy at competitive auctions from whoever offers the cheapest price. They then charge end utility customers, a retail rate, which is usually some markup over. The wholesale rate of the utility company paid jp morgan found a way to manipulate the competitive bidding process and back huge profits for themselves. They were able to pull it off by taking advantage of some technicalities in california electricity laws.

It has been estimated that their gimmicks cost americans more than 100 million dollars in higher electricity bills. Jp morgan eventually settled with the federal energy regulatory commission for nearly half a billion dollars check out our video on that scandal. If you haven't already alright guys that wraps it up for this video, what are your thoughts on this massive forex trading cartel involving the most influential banks in europe? Let us know in the comments section below, if you enjoyed this content, make sure to smash the like button and subscribe for more videos like this one. In the meantime, thank you so much for watching and we'll see in the next one wall, street millennial signing out.

.