The forex market is large and relatively unregulated compared with other asset markets. Some large banks, with the use of online messaging, may have been able to get away with interbank collusion because the forex market's large daily volume tends to filter out who is doing what and why.
The Financial Conduct Authority, a U.K. regulator, conducted a probe in June to gain access to traders' messages to determine whether wrongdoing had taken place. Messages were found that discussed positions and strategies that led to the belief collusion had in fact taken place.
The international aspects of the forex market make it out of the jurisdiction of many government entities. That allows large banks to carry out unethical behavior that would otherwise be persecuted in a different asset market.
The heavy regulation of U.S. equities allows for crimes such as insider trading and market manipulation to be spotted more easily.
In the case of the alleged instant-messaging cartel, members have already received suspensions from their employers and their managers have come under fire for failure to oversee the trading floor. It is suspected that more than a dozen traders were part of the cartel, operating at over five different investment banks.
Last month, the U.K. edition of the IBTimes stated that six Barclays traders and two RBS traders have been suspended because of the FX scandal. The list is growing.
There have yet to be any major indictments or fines, but investment banks in the U.S. and London have begun to hire criminal defense lawyers for traders who may face trial, reports say.
Instant messaging does provide a quick and cost-effective way to communicate within firms and across the world, but it needs more oversight. To this point, regulators have pursued only multilateral online chat rooms. These rooms consist of multiple people participating in the chat room from different firms. One-on-one chat among employees at different firms is still allowed.
Instant messaging is a way for teenagers to connect to their friends online. It may also have been used by high-volume forex traders looking to manipulate exchange rates. It's such a useful, yet dangerous, piece of innovation.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.