Exclusive: FBI suspects front running of Fannie, Freddie in swaps market
Source: Reuters
Wall Street traders may be manipulating a key derivatives market and front running Fannie Mae and Freddie Mac, hurting the US-owned mortgage giants in the process, according to an FBI intelligence bulletin reviewed by Reuters.
Using what Federal Bureau of Investigation agents described as "unsophisticated tradecraft," such as hand signals and special telephone ring tones, some traders are conspiring to rig rates on large orders submitted by Fannie Mae FMNA.OB and Freddie Mac, or front running them in the interest rate swaps market, the document says.
... Front running occurs when someone with advance knowledge of another market participant's plan to make a sizable transaction puts an order in first, often profiting from a market move that can occur once the big trade has gone through.
... The FBI said it had "medium confidence" in the information, which the bulletin described as coming from "multiple corroborating sources with first-hand access." However, it said it had "low confidence" that law enforcement could prosecute suspected traders because the trades concerned seem to be completely legitimate.
Read more: http://www.reuters.com/article/2014/01/14/us-usa-swaps-probe-idUSBREA0D04N20140114
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