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Sunday, 1 September 2013

The sheriff threatens to strike Syria

 
People against war: Supporters of the anti-war group Act Now to Stop War and End Racism (ANSWER) Coalition participate in a rally in Washington DC, in opposition to a possible US military strike in Syria. – EPA

For nearly all countries including the US, a military attack on Syria will only make things worse.


TEN years after US President George W. Bush attacked Iraq, his successor Barack Obama is set to do it with Syria.

A secular Muslim autocrat in West Asia, Iraqi President Saddam Hussein, was accused of possessing weapons of mass destruction (WMDs) so he “had” to be removed. Back then, Senator Obama had accused Bush of an unjustifiable and unnecessary war based on a flimsy pretext.

Now a secular Muslim autocrat in West Asia, Syrian President Bashar Assad, stands accused of using chemical WMDs. No evidence against Bashar had been presented before Washington’s decision to punish Syria.

Obama’s supporters may say it is a little different this time – just a little, though not much. Saddam’s case involved accusations of WMD possession, while Bashar’s involves accusations of actual use.

But what real difference is there once the bombs begin to drop? The arguments and circumstantial “evidence” so far are insufficient to support even a misdemeanour in a civil court, let alone a serious action such as war.

Just as the so-called evidence against Saddam’s Iraq was false, the same may be said of the case against Syria so far.

At a time when the US needed to convince the international community to support action against Syria, no evidence against Bashar had been offered. It nonetheless seemed sufficient to get Washington on the warpath again.

The White House says there is no doubt that Syria had used chemical weapons, but doubts persist. The Syrian government insists it did no such thing.

The issue concerns allegations of chemical weapons use in an area controlled by rebel forces just outside Damascus on August 21. The result – about 1400 civilian deaths.

Critics of military action ask why Syria had agreed to a UN arms inspection if it had just used banned chemical weapons, why it should target civilians including children who were not against it, and why it should do so knowing the likely international consequences. They also question the reliability of the evidence linking the incidents to the Syrian government, and the credibility of the source of the alleged evidence itself.

At the same time, motives also exist for falsifying evidence to blame Syria, so that US military action would weaken or dislodge Bashar. The beneficiaries are within and outside Syria.

The strongest “evidence” against Damascus comes from Israel, specifically Unit 8200 of the Israeli Defense Forces that supposedly intercepted the Syrian military’s electronic communications. According to Prof. John Schindler at the US Naval War College, Israel then fed this information to Washington and London for follow-up action against Syria.

Bashar’s Syria is the latest Muslim country in West Asia to be undermined by Israel, following Iraq, Libya and Egypt. In quietly promoting Western military action against these countries, Israel need not spend a single dollar or risk a single soldier’s life.

Western countries inclined to military action often find they have to depend on Israel. They lack the kind of intelligence information on the ground that Israel has, regardless of whether that information is trustworthy.

This also happens to benefit various militant groups hoping to seize power after Bashar – up to a point. Israel expects them to disagree among themselves and neutralise one another as Syria disintegrates, leaving the door open to Israeli interests.

In a US poll on Friday, 52% of respondents believe that once Bashar falls, Syria would be split. Over the medium and long terms, Israel would be the only beneficiary of another dismembered Muslim nation.

Within Syria, the considerable but still limited military strength of the various opposition groups has meant an armed stalemate while Bashar remains in office. The only factor likely to make a difference is Western military intervention, if that could be “arranged”.

On Thursday, an Associated Press news report said Washington remained uncertain where Syria stored its chemical weapons. US intelligence officials acknowledged that proof of Syria’s use of these weapons was still unclear, and that they were even less certain of Bashar’s guilt than they were of Saddam’s.

On the same day, a report released by the British government revealed that London did not understand why the Syrian government would want to use chemical weapons as alleged. Yet Britain was prepared to support the US position that Syria was guilty, nonetheless.

Meanwhile, the overwhelming majority of international opinion is set against military action. This includes the general populations in Britain and the US.

The US Congress is divided on the issue and insists that its prior approval is needed, while the British Parliament on Thursday voted to oppose military action. But US officials have said none of this would change their plans.

Russia says no evidence exists of chemical weapons use, much less to link the Syrian government to such use. China says the UN Security Council should not be pressured on deadlines to approve any action before UN inspections are complete.

UN Secretary-General Ban Ki-moon appealed for calm and for enough time for UN weapons inspectors in Syria to complete their job. Their mission ends this weekend.

Former chief UN arms inspector Hans Blix, in a similar situation a decade ago when the US had already decided to attack Iraq, now questions the right of any country to attack Syria even if it had actually used chemical weapons.

Despite the international ban on chemical weapons, no international law obligates any power to attack a country for the use of WMDs. The US itself is not restrained against its first use of nuclear WMDs.

The official US line is that “punishing” Syria is not intended to topple Bashar. In the heat of hostilities, however, nobody can guarantee there would be no regime change, especially when US forces meet with resistance and risk international embarrassment for not achieving anything substantial.

The US case for an attack also claims the “immorality” of Syria’s alleged chemical weapons use. But the moral argument is defeated when an attack could result in more civilian deaths and suffering than the supposed use of chemical weapons.

The International Committee of the Red Cross has warned that any action that escalates the Syrian conflict would only result in more civilian suffering. Unesco said the looting of Syria’s rich cultural heritage had already begun.

White House spokesman Jay Carney insisted that logically, there was no doubt about the Syrian government’s guilt. But logic remains the biggest impediment to the US argument.

Attacking another country can be legitimate only in a case of self-defence or when approved by the UN Security Council. The latter requires endorsement by all the UNSC’s Permanent Five members.

A US attack cannot cite self-defence because Syria did not attack the US. Neither will there be UNSC approval, since Russia and China are likely to vote against.

Nonetheless, the US proceeded to attack Iraq in 2003 even after China abstained. Obama may now outdo Bush by attacking Syria when both Russia and China object.

US bombs may also hit chemical weapons stockpiles, releasing poison gas and killing many more people. But then only Syrians would be affected.

Obama’s standing in the Muslim world has declined considerably since its height with his 2009 Cairo speech. Where actions speak louder than words, that decline is also happening in the developing world in general.


BUNN NAGARA is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia

Saturday, 31 August 2013

China's peaceful rise is not forever


China’s dilemmas in domestic and foreign policy

CHINA is already the second biggest economy in the world, on the cusp of becoming the largest in the not too distant future. With the world’s largest population and formidable military capability, it is more powerful than the Soviet Union ever was against the United States.

Yet, China is reticent about its success at home and role in the world. It would rather be left alone to continue with its “peaceful rise” to attend to many domestic challenges and to develop relations abroad without undue disturbance. But no power and economy its size can hope just to carry on the way it has these past three decades.

Although millions have been brought out of a-dollar-a-day poverty, over 100 million of its people still live on less than that. China’s per capita income is still less than those of nine African countries, according to LSE economist Danny Quah.

Its Gini coefficient, the measure of income inequality, has for the past decade been consistently above 0.4, the UN determined danger point for social stability (A score of one spells absolute inequality, so the lower the number the better it is). Development with equitable distribution is not taking place efficiently, whether among individuals or regions, the western parts of the country being still far behind the east and coastal areas.

Corruption is extensive which the high profile Bo Xilai trial only highlights. The ills of economic growth with disproportionate gain for some are becoming a plague on China. To add to this, environmental degradation has become a serious problem. The pollution level in 74 Chinese cities, including the capital Beijing, is over three times above the danger point set by WHO. It has been estimated life expectancy at birth in China is shortened by between seven and 12 years because of environmental deterioration.

And, against all these challenges of economic success, economic growth is slowing, a conundrum Chinese authorities have to further manage. Western authorities and economists now seem to move from fear of China to fear for China. Paul Krugman sees a crash into the Great Wall of the Chinese model of development. Having over-extended credit, the economy’s debt-fuelled asset bubble is about to burst, exposing large non-performing loans. Yet others see what economist Arthur Lewis described as the inexhaustible supply of cheap labour drying up which he claimed was behind the economic miracle of China and other emerging economies. Of course there is the usual call for China to restructure its economy, to switch from an investment-driven growth to a consumption-driven one, from export-led to domestically-charged expansion – if China is to avoid being caught in the middle income trap.

Ageing population

To boot, the population is ageing as a result of the one-child policy; so China will not reap the demographic dividend, a virile young population driving further growth and not a dependent, unproductive old one. All the time it is intoned that China’s underlying socio-political stability will be undermined if economic reforms are not put in place, together with reform of the political system.

The advice is not disinterested, even if China’s domestic challenges are truly huge. China must find a way out for itself and not be in denial because some the criticisms and cures offered by the West are not honest or consistent. If China is ageing, then the mantra of having to have at least 8% annual economic growth to absorb the work force coming onto the market does not hold true. Then, at least on this count, China’s slowing economy is not a catastrophe.

Those that will be hurt are other emerging and even Western economies as China has become an engine of global growth. Indeed many Western economies themselves are ageing. Then again, if China is to divert resources away from investment to consumption, how about those in the far west still on less than one-dollar-a-day who need to be linked to become part of a larger consumer base? What about bridging the wealth and income gap by providing the investment essentials to them of a better quality of life?

Thus, there is more than meets the eye on the advice proffered. But, there is also truth in some of them which should not be denied. China must make the balancing choices, an essential part of the management of any political economy. The new leadership is struggling to come up with a new national ethic. This is nowadays a difficult process in the globally democratised age of the IT revolution. Every netizen seems to have an opinion. It is not going to be as straightforward as Deng Xiaoping’s Four Modernisations or the Central Party School’s Peaceful Development, then to Rise and now back to Development, I think.

No.2 and growing

Even as China grapples with these momentous issues, the impact of its size on the world is not something that can be, shall we say, postponed. China is No.2 and growing. It could become Sparta to America’s Athens, rising Germany to stable old Europe, a challenging Japan denied status in the Pacific world, or a hostile Soviet Union seeking to overturn the established world order.

While most, not everything depends on the United States. China has a global role to play. How it is played will define how China is perceived as well as the outlines of the new global and regional order.

China cannot any longer avoid the role it must play by seeking to be left alone in its peaceful rise. Or by being insular and petulant in its foreign policy. Self-righteousness will be a defeatist strategy. It certainly cannot be a policy. Already, its nationalistic impulses have had negative ramifications, as can be seen from its territorial sea disputes in East and South-East Asia. China cannot be seen as attempting to assuage domestic pressures and challenges with international assertion and adventure.

China is not always in the wrong of course, but the way it conducts its foreign policy makes it appear not to be in the right. In South-East Asia, the benefits of its policy of economic cooperation since the 1997-98 financial crisis are not sufficiently underlined as the positive plank of foreign policy. Rather China retreats in hurt pride and spurned affection – and then comes out in anger. Beijing does not quite know how to turn swords into ploughshares. There is too much angst and emotion. This could be observed in the Scarborough Shoals stand-off with the Philippines last year, when the Philippines was not exactly innocent, but China came out as the bullying party. It could be seen even in the failure of Asean foreign ministers to issue a joint communiqué in July last year, widely observed as a consequence of Chinese mischief in tandem with their Cambodian ally.

But, what would have happened to Asean-China relations if an anti-Chinese communiqué had been issued? This is a point that has not been sufficiently advertised, with every commentator tearing his hair out about this first ever Asean failure because of Chinese machination.

Communication issue

It is often said China lacks soft power communication skills. Actually, soft power should be left out as an analytical tool here. China simply has to understand it has to communicate effectively, not intone. It has to develop the skills of subtle diplomacy as well as the ability to make foreign policy with a strategy to achieve its end. With that clarity and ability, China can avoid being wrong-footed, as in the South China Sea disputes, and being undermined after having invested so much economic goodwill.

The American pivot or rebalance to Asia-Pacific drew China into the purely political-security aspect of the US reassertion. China began to act as of it had some kind of Monroe Doctrine right over South-East Asia, just as the Americans claimed in Latin America. This was great power stuff, whereas China has always contended it does not have any such pretensions. President Xi Jinping had discussed with Barack Obama last June in Sunnylands about a “new type of great power relations.” Since then there has been much speculation on what that is all about. It is just G2? What about other relationships in any new world order?

The genius, perhaps unintended, of the US pivot and subsequent American initiatives is in their economic content while highlighting political and security matters in Asia-Pacific relations. In the sweep, previous Chinese economic advantages could be contained. After announcement of the pivot, former US Secretary of State Hillary Clinton led or participated in a number of business meetings in the region involving senior American corporate leaders, an association not often the case in US diplomacy. More senior American corporate leaders are actually represented in visits of the US-Asean Business Council to the region than previously.

Very importantly, American initiatives such as the Trans Pacific Partnership (TPP) and also, on the other side of the world, the Trans Atlantic Trade and Investment Partnership (TATIP), underline the basis of economic relations in significant and dominant blocs of the world. They represent the strengthening of the Washington consensus, if one examines the trade and investment rules being espoused.

Indeed they also seek to repair rules that have been violated to protect interests such as intellectual property, investment rights and financial flows. Fundamentally, these initiatives have significant geopolitical consequence. As I have written previously, the Americans are not about to roll over and die against a rising China. Their palms are still wrapped around the globe.

When I asked a senior Chinese official during a visit to Beijing earlier this month why China has chosen not to participate in the TPP, the answer was: It would only benefit the big countries and their big companies. When I suggested it would be better to participate to shape the rules that will govern trade and investment relations of the future, the answer was China’s Free Trade Agreements had worked well to the benefit of the member countries. The proposed Regional Comprehensive Economic Partnership (RCEP), which is a massive multilateral expression of such free trade agreements, is of course China’s preferred route.

Wrong turns

It would appear therefore that in terms of strategy in international politics, China would rather let the Americans make the running. Let the United States expend its “American exceptionalism” while China has the absorptive capacity of the Middle Kingdom. However, time may not always be on China’s side as it had been in the past. China has serious domestic problems with a discerning and demanding populace linked to the global democratic marketplace.

China has made a number of wrong turns in the conduct of its foreign policy which may make the Americans a more attractive strategic proposition. This is not the world where China will be left alone to get on with it. Better that China participates more actively in the making of that world even if it does not wish to upset it.

COMMENT BY TAN SRI DR MUNIR MAJID

Friday, 30 August 2013

Get 'smart’ pill is just sugar! What science are they teaching in schools?

The 'smart pills' sold in school are nothing more than just sugar.

PETALING JAYA: The pill that can supposedly make children “smarter and more obedient” is nothing more than sugar, said the Malaysian Medical Association (MMA).

According to its president Datuk Dr N.K.S. Tharma­seelan, upon analysis, it was found that 95% of the pill marketed as Dimensi 108 consists of sugar and other carbohydrates.

Herbs constituted only 7.5mg, or 1.5%, of the 500mg pill, he said.

“Although some of the herbs have been used in traditional Chinese medicine, the amount in this pill is minuscule to be of any use.

“In conclusion, Dimensi 108 is just a sugar pill with a tinge of herbs,” he said in response to The Star’s Thursday cover story which reported that schools in several states have been pushing the pills to pupils.

Dr Tharmaseelan called for the sale of the pills to be stopped immediately until the manufacturer can substantiate its claims through proper studies.

The Dimensi 108 pills were alleged to be able to “alter” children’s behaviour to make them more obedient and resistant to illnesses, and its listed ingredients include red dates, water lily seeds, rock sugar and spirulina.

Tiga G Dimensi Satu Kosong Lapan Sdn Bhd’s managing director Omar Mohd Yusos had claimed that the pills supplied by his firm were safe, and that the product had been distributed to schools since 2010.

Consultant psychiatrist Dr Ting Joe Hang said the notion of popping pills to make children more obedient was preposterous, and there was no drug in the world that could do that.

- Contributed by  By YUEN MEIKENG  meikeng@thestar.com.my/Asia News Network

What science are they teaching in schools?

I REFER to “Schools push ‘magic’ pills” and “Get smart pills are safe to be consumed, says firm” (The Star, Aug 29 - Malaysian schools push 'magic' pills!)

I’m sure in the coming days the reports will elicit many and varied responses from all the concerned stakeholders.

I am disturbed in particular by the “explanation” by the firm on how the pills are supposed to work.

In loading some scientific terms in its “explanation”, I opine that it is making not sense but rather nonsense out of its defence.

Let’s abstract from the reports: “When consumed, the hydrogen and nitrogen in the tablets will go into the bloodstream and form a molecule chain that acts like a ‘bullet’ to destroy negative molecules and generate positive energy ... This energy also works as a defense against bacteria or viruses that cause illnesses.”

What “defense molecule chain” is formed from “hydrogen and nitrogen” that can fight off “bacteria and viruses”?

And, what “negative molecules” and “positive energy”? What are these? I don’t remember coming across these in my studies of the sciences?

What is more alarming is we have school teachers and administrators who are buying into such arguments.

What sciences are we really teaching in schools nowadays?

It looks like not only the language of instruction and the pedagogy that need re-examining but also the contents of our science curriculum and syllabi. I cry for our innocent charges!

Indeed, our soon to be revealed Education Blueprint 2013-2025 and its implementation has a taunting and heavy task ahead, especially in the field of science education.

-  LIONG KAM CHONG Seremban

Related news:
 Stop distributing ‘magic pills’
From A CONCERNED MOTHER of Kuala Lumpur.

Related post:
Malaysian schools push 'magic' smart pills!

Thursday, 29 August 2013

Malaysian schools push 'magic' smart pills!


So called food supplement supposedly makes pupuls cleverer

PETALING JAYA: Schools in several states have been “pushing” pills that supposedly make pupils cleverer.

The promoters also claim that the “get smart” pills, named Dimensi 108, which are marketed as food supplements, can alter children’s behaviour to make them more obedient and hard-working as well as resistant to illnesses.

Concerned parents from a school in Kuala Lumpur contacted The Star when the tablets were distributed to Year Six pupils earlier this week, saying their children were being forced to buy the pills.

One parent said she had asked her daughter to return the pills to the class teacher and refused to pay for them.

“When my daughter and a few of her friends returned the pills, the teacher told them not to blame her if they are tak pandai (not clever) in their UPSR (which starts on Sept 9).

“Can you believe that? The teacher is supposed to encourage the kids to work hard for their exams and not rely on some pills with so-called magical properties,’’ the outraged parent told The Star.

Another complainant, whose brother is studying at the school, has lodged a written complaint with the Health Ministry.

“A ministry official told me that they will look into the matter, and I have also sent pictures of the packaging of the pills with the ministry’s logo on it.

“I hope they will get to the bottom of this as quickly as possible because we need to know whether the product is legitimate or not,” said the complainant.

The school’s headmistress said parents had “misunderstood” the nature of the pills and it was not compulsory for pupils to buy them.

“We would not promote anything that is bad for the pupils ... these are just like herbal supplements to help pupils concentrate and build energy for the upcoming examination.

“They have ingredients such as spirulina and red dates, which are known for their health-giving properties. I myself give them to my child near the examination period.

“The product also has the endorsement of the Malaysian Federation of the Council of Headmasters, meaning that it has been approved by the Health and Education ministries,” she said.

The headmistress claimed that the pills were supplied to the school by the council.

“One parent shared her concerns with me personally, and when I explained the situation, she was very supportive,” she added.

Some parents remained sceptical.

“Only RM5 for a behaviour altering drug? This is way too affordable for the best thing since the discovery of DNA,” quipped a parent on Facebook.

“Spend a few hundred bucks, behavioural issues solved ... Where can I mass order? Or how to sign up to be an agent?” added another.


 Related news:  
Get smart pills are safe to be consumed says firm
Health Ministry to probe pillpopping schools

Currency spikes in London provide rigging Clues!

An employee counts a stack of U.S. one hundred dollar bills inside a currency exchange center in Mexico City. Photographer: Susana Gonzalez/Bloomberg 

In the space of 20 minutes on the last Friday in June, the value of the U.S. dollar jumped 0.57 percent against its Canadian counterpart, the biggest move in a month. Within an hour, two-thirds of that gain had melted away.

The same pattern -- a sudden surge minutes before 4 p.m. in London on the last trading day of the month, followed by a quick reversal -- occurred 31 percent of the time across 14 currency pairs over two years, according to data compiled by Bloomberg. For the most frequently traded pairs, such as euro-dollar, it happened about half the time, the data show.

The recurring spikes take place at the same time financial benchmarks known as the WM/Reuters (TRI) rates are set based on those trades.


Fund managers and scholars say the volatile forex trading patterns look like an attempt by currency dealers to manipulate rates -AFP

Now fund managers and scholars say the patterns look like an attempt by currency dealers to manipulate the rates, distorting the value of trillions of dollars of investments in funds that track global indexes. Bloomberg News reported in June that dealers shared information and used client orders to move the rates to boost trading profit. The U.K. Financial Conduct Authority is reviewing the allegations, a spokesman said.

“We see enormous spikes,” said Michael DuCharme, head of foreign exchange at Seattle-based Russell Investments, which traded $420 billion of foreign currency last year for its own funds and institutional investors.

 “Then, shortly after 4 p.m., it just reverts back to what seems to have been the market rate. It adds to the suspicion that things aren’t right.”

Global Probes

Authorities around the world are investigating the abuse of financial benchmarks by large banks that play a central role in setting them.

Barclays Plc (BARC), Royal Bank of Scotland Group Plc and UBS AG (UBSN) were fined a combined $2.5 billion for rigging the London interbank offered rate, or Libor, used to price $300 trillion of securities from student loans to mortgages.

More than a dozen banks have been subpoenaed by the U.S. Commodity Futures Trading Commission over allegations traders worked with brokers at ICAP Plc (IAP) to manipulate ISDAfix, a benchmark used in interest-rate derivatives. ICAP Chief Executive Officer Michael Spencer said in May that an internal probe found no evidence of wrongdoing.


Investors and consultants interviewed by Bloomberg News say dealers at banks, which dominate the $4.7 trillion-a-day currency market, may be executing a large number of trades over a short period to move the rate to their advantage, a practice known as banging the close.

Because the 4 p.m. benchmark determines how much profit dealers make on the positions they’ve taken in the preceding hour, there’s an incentive to influence the rate, DuCharme said. Dealers say they have to trade during the window to meet client demand and minimize their own risk.

Currency Patterns

“There are some patterns in currencies that are very similar to what I have seen in other markets, such as the way the price-fixings’ effects disappear so often by the following day,” said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business, whose August 2008 paper, “Libor Manipulation?,” helped trigger the probe into the rigging of benchmark interest rates. “You also see large price moves at a time of day when volume of trading is high and hence the market is very liquid. If I were a regulator, it’s certainly something I would consider taking a look at.”

WM/Reuters rates, which determine what many pension funds and money managers pay for their foreign exchange, are published hourly for 160 currencies and half-hourly for the 21 most-traded. The benchmarks are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour. Rates for less-widely traded currencies are based on quotes during a two-minute window.

London Close

Benchmark providers such as FTSE Group and MSCI Inc. base daily valuations of indexes spanning different currencies on the 4 p.m. WM/Reuters rates, known as the London close. Index funds, which track global indexes such as the MSCI World Index, also trade at the rates to reduce tracking error, or the drag on funds’ performance relative to the securities they follow caused by currency fluctuations.

The data are collected and distributed by World Markets Co., a unit of Boston-based State Street Corp. (STT), and Thomson Reuters Corp. Bloomberg LP, the parent company of Bloomberg News, competes with Thomson Reuters and ICAP in providing news and information as well as currency-trading systems.

Reuters and World Markets referred requests for comment to State Street. Noreen Shah, a spokeswoman for the custody bank in London, said in an e-mail that the rates are derived from actual trades and the benchmark is calculated anonymously, with multiple review processes to monitor the quality of the data.

“WM supports efforts by the industry to determine and address any alleged disruptive behavior by market participants and we welcome further discussions on these issues and what preventative measures can be adopted,” Shah said.

Opaque Market

The foreign-exchange market is one of the least regulated and most opaque in the financial system. It’s also concentrated, with four banks accounting for more than half of all trading, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank AG (DBK) is No. 1 with a 15 percent share, followed by Citigroup Inc. (C) with almost 15 percent and London-based Barclays and Switzerland’s UBS, which both have 10 percent. All four banks declined to comment.

Because they receive clients’ orders in advance of the close, and some traders discuss orders with counterparts at other firms, banks have an insight into the future direction of rates, five dealers interviewed in June said. That allows them to maximize profits on their clients’ orders and sometimes make their own additional bets, according to the dealers, who asked not to be identified because the practice is controversial.

‘Incredibly Large’

Even small distortions in foreign-exchange rates can cost investors hundreds of millions of dollars a year, eating into returns for savers and retirees, said James Cochrane, director of analytics at New York-based Investment Technology Group Inc., which advises companies and investors on executing trades.

“What started out as a simple benchmarking tool has become something incredibly large, and there’s no regulatory body looking after it,” said Cochrane, a former foreign-exchange salesman at Deutsche Bank who has worked at Thomson Reuters. “Every basis point is worth a tremendous amount of money.”

An investor seeking to change 1 billion Canadian dollars ($950 million) into U.S. currency on June 28 would have received $5.4 million less had the trade been made at the WM/Reuters rate instead of the spot rate 20 minutes before the 4 p.m. window.

“Funds that consistently trade using the WM/Reuters fix are basically trading against themselves, and their portfolio is taking a hit,” Cochrane said.

FCA Complaint

One of Europe’s largest money managers, who invests on behalf of pension holders and savers, has complained to the FCA, alleging the rate is being manipulated, said a person with knowledge of the matter who asked that neither he nor the firm be identified because he wasn’t authorized to speak publicly.

The regulator sent requests for information to four banks, including Frankfurt-based Deutsche Bank and New York-based Citigroup, according to a person with knowledge of the matter. Chris Hamilton, a spokesman for the FCA, declined to comment, as did spokesmen for Deutsche Bank and Citigroup.

Bloomberg News counted how many times spikes of at least 0.2 percent occurred in the 30 minutes before 4 p.m. for 14 currency pairs on the last working day of each month from July 2011 through June 2013. To qualify, the move had to be one of the three biggest of the day and have reversed by at least half within four hours, to exclude any longer-lasting movements.

The sample was made up of currency pairs ranging from the most liquid, such as euro-dollar, to less-widely traded ones such as the euro to the Polish zloty.

Pounds, Kronor

End-of-month spikes of at least 0.2 percent were more prevalent for some pairs, the data show. They occurred about half the time in the exchange rates for U.S. dollars and British pounds and for euros and Swedish kronor. In other pairs, including dollar-Brazilian real and euro-Swiss franc, the moves occurred about twice a year on average.

Such spikes should be expected at the end of the month because of a correlation between equities and foreign exchange, said two foreign-exchange traders who asked not to be identified because they weren’t authorized to speak publicly on behalf of their firms. A large proportion of trading at that time is generated by index funds, which buy and sell stocks or bonds to match an underlying basket of securities, the traders said.

Banks that have agreed to make transactions for funds at the 4 p.m. WM/Reuters close need to push through the bulk of their trades during the window where possible to minimize losses from market movements, the traders said. That leads to a surge in trading volume, which can intensify any moves.

Index Funds

For 10 major currency pairs, the minutes surrounding the 4 p.m. London close are the busiest for trading at the end of the month, quarter and year, according to Michael Melvin and John Prins at BlackRock Inc. who examined trading data from the Reuters and Electronic Broking Services trading platforms from May 2, 2005, to March 12, 2010.

Reuters and ICAP, which owns EBS, declined to provide data on intraday trading volumes for this article.

Index funds, which manage $3.6 trillion according to Morningstar Inc., typically place the bulk of their orders with banks on the last day of the month as they adjust rolling currency hedges to reflect relative movements between equity indexes in different countries and invest inflows from customers over the previous 30 days. Most requests are placed in the hour preceding the 4 p.m. London window, and banks agree to trade at the benchmark rate, regardless of later price moves.

Opposite Effect

“Since the major fix-market-making banks know their fixing orders in advance of 4 p.m., they can ‘pre-position’ or take positions for themselves prior to the attempt to move prices in their favor,” Melvin and Prins wrote in “Equity Hedging and Exchange Rates at the London 4 P.M. Fix,” an update of a report for a 2011 Munich conference. “The large market-makers are adept at trading in advance of the fix to push prices in their favor so that the fixing trades are profitable on average.”

Recurring price spikes, particularly during busy times such as the end of the month, can indicate market manipulation and possibly collusion, according to Abrantes-Metz.

“If the volume of trading is high, each trade has less importance in the overall market and is less likely to impact the final price,” said Abrantes-Metz, who’s also a principal at Chicago-based Global Economics Group Inc. and a World Bank consultant. “That’s exactly the opposite of what we’re seeing here. That could be a signal of a problem in this market.”

‘Massive Trades’

U.S. regulators have sanctioned firms for banging the close in other markets. The CFTC fined hedge-fund firm Moore Capital Management LP $25 million in April 2010 for attempting to manipulate the settlement price of platinum and palladium futures. The regulator ordered Dutch trading firm Optiver BV to pay $14 million in April 2012 for trying to move oil prices by executing a large number of trades at the end of the day.

Melvin, head of currency and fixed-income research at BlackRock’s global markets strategies group in San Francisco, and Prins, a vice president in the group, said that because banks could lose money if the market moves against them, their profit may be viewed as compensation for the risk they assume. Both declined to comment beyond their report.

“Part of the problem is it’s all concentrated over a 60-second window, which gives such an opportunity to bang through massive trades,” said Mark Taylor, dean of the Warwick Business School in Coventry, England, and a former managing director at New York-based BlackRock.

World Markets, the administrator of the benchmark, could extend the periods during which the rates are set to 10 minutes or use randomly selected 60-second windows each day, said Taylor, who began his career as a currency trader in London.

‘Fiduciary Duty’

Trading at the highly volatile 4 p.m. close instead of at a daily weighted average could erase 5 percentage points of performance annually for a fund tracking the MSCI World Index, according to a May 2010 report by Paul Aston, then an analyst at Morgan Stanley. (MS) For an asset manager trading $10 billion of currencies, that equates to $500 million that would otherwise be in the hands of investors. Aston, now at TD Securities Inc. in New York, declined to comment.

Fund managers rarely complain about getting a bad deal because they’re assessed on their ability to track an index rather than minimize trading costs, according to consultants hired by companies and investors to help execute trades efficiently.

“Where possible, I would always advise clients not to trade at the fix -- but minimizing tracking error is so important to them,” said Russell’s DuCharme. “That doesn’t seem to be the right attitude to take when you have a fiduciary duty to seek the best execution for pension holders.”

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