The investment bank does not permit spot trades intended to move the underlying rate or to trigger a barrier rate.
Morgan Stanley’s head of foreign exchange trading testified at the fraud trial of a hedge fund co-founder accused of manipulating the market to trigger a “barrier” option sold by the bank, saying it prohibits such conduct among its own traders.Yuki Iwamura/Bloomberg
As Glen Point’s counterparty on the option, Morgan Stanley was the fund’s alleged victim. Phillips’ lawyers are arguing that his trades fell within standard industry practices of barrier chasing and defending. The defence has claimed that Morgan Stanley would have anticipated Phillips’ actions and engaged in barrier trading against him over the rand-dollar pair.
When such barriers are triggered, Morgan Stanley presumes that its counterparty’s trades are legitimate, he said. Oweida additionally testified that Morgan Stanley, as a currency market maker, doesn’t price in the possibility that a counterparty will move markets to trigger a barrier.The testimony was perhaps the strongest that prosecutors have put on in the case to date, though Oweida was only speaking in general terms.
US District Judge Lewis J Liman allowed Oweida’s testimony but said the defence could cross-examine him about whether market participants expect trading around barrier limits.
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