Special report: After Libor, where will the next scandal be?
No one would have believed Libor interest rates could generate the biggest scandal in financial services since Fred Goodwin waltzed off into the sunset with a £500,000 annual pension.
That was until a journalist on the Wall Street Journal noticed there was something odd about the numbers banks were submitting during the financial crisis, prompting a multi-million pound transatlantic investigation.
Its findings shone an unflattering light into one of the City's dark corners that resulted in Barclays paying £290m in fines and saw the resignations of its chief executive, chief operating officer and chairman.
But Libor interest rates aren't the only oddity in the Square Mile.
Here we shine a light into a few more of the City's dark corners. The professionals dismiss talk of a scandal coming from any of them. But they used to say that about Libor interest rates.
Twice a day the price of the precious metal is set – or (and it's a rather unfortunate term) fixed – by five banks: Bank of Nova Scotia, Deutsche Bank, HSBC, Société Gé*érale and (wait for it) Barclays.
The leader of the fix begins by proposing a price and the five then simulate trading, by looking at their own and client's buy and sell orders, around it until the price is set.
All transactions in gold in London are based on this price. It's an arcane process to say the least and until 2004 used to be done in conditions of high secrecy at the offices of NM Rothschild in St Swithin's Lane. The price was only set when all five members lowered little Union Jack flags.
Since Rothschild sold its interest in the market (to Barclays) a teleconference has been set up and members simply call out "flag" to indicate a change in position or "flag down" when they are ready to complete. Seriously.
The market itself is not regulated as such. It's done under the auspices of the London Bullion Market Association and follows a code of conduct.
There are also silver and platinum fixes.
The FTSE 100
Britain's premier stock market index. But did you know it's not even made up of the 100 biggest companies: to get in you have to be better than 90th place in terms of market capitalisation (the value of all your shares put together). And to get booted out you need to be below 111th (the index is reviewed every three months).
You also have to be a British company. Sort of. Kazakhmys, for example, is headquartered in London and its shares are listed here. But it's a bit of a stretch to call it British. WPP, the advertising and media group, is headquartered in Dublin but because its shares have a primary listing in London it gets in. Ryanair, however (to the chagrin of its boss, Michael O'Leary) is out. Even though it has an operating base here, the primary listing of its shares is not in London. What that shows is the FTSE Committee is scrupulously honest. It obeys the somewhat quixotic rules to the letter.
Being in the FTSE 100 is a big deal. It gets you noticed, brings in analysts to write about you and forces tracker funds to invest in you. Indices can also be traded and there are innumerable derivatives contracts linked to them.
If there's to be a scandal it's more likely to involve traders trying to influence who gets in (or is booted out). Trading in stocks and shares is, of course, tightly regulated. The formation of the index, though, is not.
The Foreign Exchange Market
Or the Forex market in City-speak. It's hard to call this a dark corner. It's the biggest market in London, and in the world, in terms of the sheer volumes of money changing hands – $4trn (£2.6trn) daily. Not that this stops people from trying to manipulate it.
Central banks such as the Bank of England, the US Federal Reserves and lots of others are always at it, either trying to push their currencies higher (when they fear a forced devaluation and inflation) or lower (to make exports more competitive). Their efforts tend to meet with very limited success.
Speculators, particularly hedge funds, are very active and their role can also prove highly controversial.
Of more concern right now are the games being played by so called "high-frequency traders" who use black boxes to place blistering numbers of currency trades in nano seconds.
Lots of influential people question their activities and want the hammer brought down. They might have a point.
No, this is not a strange new product at Waitrose.
It is a contract between two parties and usually involves a bank either as a broker or on one side or another of the deal.
Let's say you produce animal feed and you're worried the price of lysine (an additive) will go up. For a fee, you can ask an investment bank to produce a contract that will allow you to buy the stuff at a fixed price in, say, six months' time. Thus you are protected.
A supplier of lysine (worried that the price might fall) might also sign a deal to sell at a similar, fixed price. The bank sits in the middle.
These contracts can be highly complex. The consequences of a big bank having a lot of nasties that could blow up in the event of the economy doing something unexpected keeps watchdogs awake at night.
They want to regulate the whole thing more tightly, standardise contracts and make them tradeable over exchanges. Which might help a bit.
This one could be a real nasty.
Derivatives based on oil prices are, of course, regulated. But the "spot" crude price is not. And a report for the G20 has found, guess what, that the market is open to manipulation.
The price at the pumps is (in part) dependent on oil price benchmarks which retailers use to work out the price for future supplies. The rates are calculated based on submissions from firms which trade oil daily. So, guess what, it rather depends on how honest banks and hedge funds that do this trading are. Oh dear.
Price-reporting agencies point out that they employ journalists to weed out false submissions from those with an incentive to push prices one way or another. But the Libor affair has set alarm bells ringing about markets based on the submissions of people who participate in those markets.