One of the biggest insider trading cases in Australian history puts the spotlight on the forex market. It’s the crime where no one is sure whether or not they are the victim. Become a SMH member today! Join today and you can easily save your favourite articles, join forex trading competition uk the conversation and comment, plus select which news your want direct to your inbox.
Transparency of the forex market could change under rules being introduced by the Australian Securities and Investments Commission. But, a week after 26-year-old NAB employee Lukas Kamay and his mate, 24-year-old Australian Bureau of Statistics worker Christopher Hill, faced court charged with offences that could see them jailed for 10 years, global financial institutions have yet to figure out which of them lost out in the multimillion-dollar trades. Either that, or they’re just not telling. However, it is believed a legal team at BNP Paribas is still investigating whether it was exposed to one of the trades. The ambiguity around who lost out is perhaps to be expected in an industry that, despite its vast size and glossy marketing that targets retail investors, operates largely outside of the regulatory and media spotlight.
5 trillion churns through the global forex market – which, unlike the sharemarket, operates 24 hours a day. And Australia is a key part of this global circus, punching above its weight due to the strength of its economy and the high yield available to investors. Get the latest news and updates emailed straight to your inbox. The dollar ranks fifth on the list of most traded currencies, and the Australian-US dollar is the fourth-most-traded currency pair in the world, according to the Reserve Bank. It’s a trade that has long been a trap for the unwary. In the early 1980s, farmers desperate for finance plunged into the forex market, snapping up low-interest loans denominated in Swiss francs. But the loans, essentially a bet on the Aussie dollar remaining strong against the franc, went horribly wrong when the dollar plunged in 1985 and 1986, costing some borrowers their farms.
Industry figures say the foreign exchange market is secretive and unregulated by its very nature, as most transactions occur on an over-the-counter basis, through a dealer or broker, rather than a central exchange. This means that any information available to regulators and consumers is limited, particularly compared with other markets such as the sharemarket, where companies are required to release information to investors under continuous disclosure rules. Both men face up to 10 years’ jail if convicted of insider trading. Those brokers then hedge their exposure to trades through the big banks that provide their liquidity. One source says the over-the-counter market, including foreign exchange, was ”self-regulated and always has been”. Another was blunter, saying that ”they’re all pirates in retail”. Banking experts have stressed the difficulty in trying to regulate a market as big as forex.
There are trillions of transactions in the foreign exchange market each day, so it is beyond the capacity of any individual regulator,” George Gilligan, a senior research fellow at the University of New South Wales law school, says. If there is chronic loss of confidence again in capital markets, you run the risk of plunging into the vortex of another global financial crisis. But despite the risks, forex is extremely popular with day traders seeking a fresh thrill away from the equities markets. And with most of the big brokers offering a mobile phone app, traders can win or lose while at the hairdresser or waiting for the bus. 7 million – making it one of the biggest insider trading cases in Australian history.
The insider trading busts have given the forex market more attention, even if it’s not the kind of attention the industry had been seeking. Before the dramatic arrests, Pepperstone had been gathering a few finance media headlines as a potential float on the Australian Securities Exchange, while Sky News viewers might occasionally have seen ads for a UK group called Knowledge to Action, which spruiks training courses designed to turn clients into gun forex traders. Knowledge to Action’s website features plenty of its tanned founder, Greg Secker, ”a multimillionaire by his mid 20s”, and success stories from graduates of its courses – including a Youtube video of a ”trader success day” filmed on a yacht in Sydney Harbour. However, a Knowledge to Action spokesman said forex was not a way to get rich quick. 5000 to do a course is not our ideal candidate,” he said.
Meanwhile, broker Halifax Investment Services promotes itself using a celebrity ”ambassador”, former Test cricket captain Mark ”Tubby” Taylor. According to Taylor, who also advertises Fujitsu airconditioners, Halifax is pretty much the greatest thing since sliced bread. They just offer me the best all-round solution for managing my investments,” Taylor says in a promotional video on the Halifax website. It seems the US regulator in charge of foreign exchange markets, the Commodity Futures Trading Commission, disagrees. Last month, after being taken to US Federal Court by the commission, Halifax agreed to a permanent injunction barring it from accepting American customers.