And investigations of further cases and criminal actions, in foreign exchange and other markets, remain ongoing. Some of the cases already brought by colleagues at the Financial Conduct Authority have resulted in the publication of truly shocking evidence about the behaviour by some individuals in these markets. What particularly struck me in reading some of that evidence was how casual their attitude appeared to be towards the abuses they perpetrated. In one example, a trader mentioned to his manager that he had asked a colleague to lower the firm’s Yen Libor submission, adding that “every little helps…it’s like Tescos.” Was the  2  BIS central bankers’ speeches  manager concerned? Not a bit of it. “Absolutely, every little helps”, he replied. 1 Some individuals seem to have enjoyed a perverse kind of prestige from their involvement in the process. One Libor submitter was told by a grateful trader for whom he had manipulated a submission that his “name will be written in golden letters” should he ever write a book on the business. 2 As somebody who believes in markets, I find this behaviour outrageous. How did this happen? How did this happen? Some academics I have spoken to think that part of the answer may lie in the field of moral psychology. 3 That view suggests that initial transgressions occur because many decisions taken by those in financial markets are done by way of automatic, fast thinking – “System 1” thinking in the language of Nobel Prize winner Daniel Kahneman 4.
In the consultation document, we ask whether that process should go further, whether through industry-led standardisation, removing barriers to entry for new electronic trading platforms or utilities, or further transparency enhancements to practices such as new issue allocation. Or could imposing standardisation or transparency standards in excess of those already in place harm, rather than enhance, market functioning and risk transfer? Do practices such as ‘internalisation’ – where banks match off client orders internally – pose any challenges? 2. Competition and market discipline  The second structural category is competition and market discipline. Concentration in some FICC markets is relatively high both amongst intermediaries and amongst the major asset managers, and has risen further since the financial crisis. For example, the top six dealers account for over 60% of the UK interdealer FX market. In some cases, firms have also engaged in horizontal or vertical integration – raising potential conflicts of interest and concerns about information asymmetries. A number of recent misconduct cases have involved attempted collusion, abuse of market power or inadequate management or control of conflicts. The ability of FICC market participants to exercise market discipline against those engaging in misconduct may also have diminished somewhat in recent years. At the same time, the market maker system has delivered important benefits, including tight pricing and deep and near-continuous liquidity in a wide range of market conditions.