The Swiss National Bank (SNB) cleared Philipp Hildebrand of any wrongdoing and has retained him as president of the central bank, despite his wife selling Swiss francs just a few days before the currency's devaluation – but this has not stopped market participants highlighting the questionable nature of the transactions:
[Excerpt from Hildebrand press conference speech]
In April and May, and subsequently in October, we purchased euros for a total value of
around CHF114,000 to buy paintings and a boat; the regulations classify these
transactions as the purchase of non-financial assets, and as such they are not subject to
In the critical period prior to the decision to impose a minimum exchange rate against the
euro, there were two foreign exchange transactions on August 15, 2011, in which around
USD504,477 was purchased, costing CHF400,000 in total. The bank statements show two
transactions at the same exchange rate (USD484,477.24 against CHF384,142, and
USD20,000 against CHF15,858 – a total of CHF400,000), because I opened a subaccount for
our daughter; USD20,000 was transferred to this account on my instructions.
This corresponds to around one-third of the sub-account’s value at that time. The large
transaction was requested by my wife – who has always had power of attorney for my
accounts – on August 15, 2011 at 1.20pm, by means of an email to our account manager
at Bank Sarasin, and without my knowledge. As you can see from the PwC report, she
wanted to raise the share of US dollars in our financial assets (liquid funds) to around
50%. The account manager confirmed the request at 3.10pm on the same day, and sent
me a copy. The next morning, I read the bank confirmations and at 7.36am informed our
account manager that, in future, he was not to carry out any foreign exchange
transactions without first obtaining an instruction or confirmation from me.
With hindsight, if I reproach myself for anything, it is that I allowed the transaction requested by my wife,
who is not informed of monetary policy decisions, to stand rather than acting more
decisively and ordering that all the foreign currency transactions of August 15, 2011, be
Again, while no laws or contentious legal issues were breached, it has highlighted the supposed loopholes in FX trading.
Investors of foreign exchange cannot be accused or convicted of insider trading. Unlike stocks, futures or options, FX trading is not regulated by a central governing body, and there are no clearing houses to guarantee trades and no arbitration panel or process if a case like this is disputed.
Experts, of course, are not willing to comment directly on the Hildebrand case, but this is an example of what some call "abuses of law or power".
However, experts do highlight that FX is naturally a deeply liquid, open and global market, which is the "polar opposite of the majority of equities". But naturally, within any market, there are points of contention where "insider trading" could be possible – although one cannot be accused, trialled or convicted of it.
Simon Smith, chief economist at FxPro, tells Euromoney:
There are two main areas for possible exploitation.
Firstly, in official circles there will naturally be those with access to information that could impact the currency [data releases]. Far more rare are those with information that will impact the currency directly, i.e. exchange controls, the movement or implementation of a peg. In most countries, such officials will be bound by codes relating to their financial transactions that would prevent them from profiting from such information.
Secondly, the short-coming of the FX market in this arena is that it is dominated by larger institutions, with the top-five participants controlling 50% of the volume. This will give them an information advantage, but it must be stressed that this is not the same as insider trading. It’s the nature of an over-the-counter market that such information asymmetries will exist in terms of order and customer flows.
But there are still regulations that apply to FX that should ensure that these are not exploited to the advantage of the bank.
However, addressing these concerns, Hildebrand made it clear in his speech that he and the SNB will be "taking steps to ensure that transparency over compliance with SNB regulations is guaranteed fully and at all times".
• Members of the Governing Board should be required to submit all financial
transactions exceeding CHF20,000 to the external and internal auditors for a
compliance check before such transactions are carried out.
• At the General Meeting of Shareholders, all such transactions should be published
by the external auditors.
• The SNB’s external auditors should have unrestricted access at all times to all
account documentation of Governing Board members.
Only over time we will see if this will work.
- Euromoney Skew Blog