Reuters spoke to brokers and traders in the City of London financial district who think traders might be getting kickbacks from brokers.One trader at a US firm said, “You see patterns that don’t make sense and you wonder ‘Are people getting the big trades in return for a kickback’. Of course, you can’t prove anything.”
According to the reporter, Tom Bergin, equity dealers apparently believe currency and commodity traders in particular are not really monitored to make sure their incentives are appropriate.
An oil broker told Bergin that his boss paid for a prostitute for the client in Geneva, where prostitution is legal.
The equity dealers apparently say currency and commodity traders are more likely to receive better incentives “because retail investors are seen as less likely to be directly hurt by any wrongdoing and the final client tends to be a major institution.”
“Incentives” are normal and legal. Around 20% of fund management institutions are responsible for 80% of brokers’ commissions, according to Reuters. Brokers take those guys out for fancy dinners, games, etc because they want their business.
“I have seen some people using just one broker,” one trader in London told Reuters. “Some people are best mates, some people are receiving nice presents. People are human.”
Incentives only becomes illegal when brokers start handing cash to traders under the table. Until someone can prove that, the argument is moot.
No dealer could recall a single reported or prosecuted case of cash kickbacks and many others don’t think they occur at all.
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