Ahead of sentencing, HSBC bankers admitted they traded the same way as their head of FX (Mark Johnson). It was simply "common practice". Thus did they act to protect their Chief. Now, Mark Johnson just got 2 years in prison. The fraud in HSBC's FX division runs from top to bottom. More than 2 dozen others at HSBC should also be investigated. https://www.law360.com/articles/1035874/hsbc-bankers-stick-up-for-former-exec-ahead-of-sentencing
This kind of thing has been going on for decades, Obviously things must have changed, and if its no longer considered legal, then the banks shouldn't be doing it anymore. The following is from the book New Market Wizards, 1990, interview with FX trader Bill Lipschutz: ==== Bottom line: If it weren't for the bid/ask spread, would the banks make money on their trading operations? ==== Probably not in conventional position trading in the way you think of it. However, there is another aspect of directional trading that's very profitable. Take Joe Trader. Day in. day out, he quotes bid/ask spreads and makes a small average profit per transaction. One day a customer comes in and has to sell $2 billion. The trader sells $2.1 billion, and the market breaks 1 percent. He's just made $1 million on that one trade. ==== In a lot of markets that's illegal. It's called frontrunning. ==== It's not illegal in the interbank market. He's not putting his order in front of the customer's; he's basically riding his coattails. ==== So he does the whole order at the same price? ==== Generally, the first $100 million would be the bank's. That's just the way the market is. ==== Is there any difference between that transaction and what is normally referred to as frontrunning? ==== Yes, it's legal m one market and illegal in the other. ==== That's the answer from a regulatory viewpoint. I'm asking the question from a mechanical perspective: Is there an actual difference in the transaction? ==== The real answer is no, but I'll give you the answer from a bank's perspective. When I allow you to come in and sell $2 billion in the foreign exchange market, I'm accepting the credit risk and providing the liquidity and facility to make that trade. In exchange, you're providing me with the information that you're about to sell $2 billion. That is not a totally unreasonable rationalization.