Reported by: Donal Griffin, Amelia Pollard and Nishant Kumar

Over almost three decades in the City of London, the aggressive trading strategies of Glen Point Capital co-founder Neil Phillips made him few friends even as they burnished his reputation as a hard-charging trader.

Those sharp elbows have now drawn the attention of the US Department of Justice, which charged Phillips with market manipulation in September. The move sent shockwaves from the Spanish island of Ibiza — where he was arrested on vacation and is now awaiting an extradition hearing — all the way back to Wall Street.

Prosecutors claim that Phillips traded heavily in the South African rand in order to force the success of a separate all-or-nothing $20 million bet that the currency would hit a specific level, a once-widespread strategy that’s known in the industry as ‘barrier chasing.’

The US says this is fraud. For many on Wall Street, it’s just combat.

The US accuses Phillips of buying $725 million of rand in the early hours of Dec. 26, 2017 in order to push the exchange rate with the US dollar below a barrier of 12.50. This triggered a $20 million payout from another bet he had made through derivatives known as FX options, prosecutors say.

Barrier chasing revolves around FX options, financial products arranged by Wall Street banks and popular among hedge funds that use them for high-risk geopolitical wagers. The exotic version that Phillips allegedly bought — known as a “one-touch digital barrier option” — is an all-or-nothing bet on a currency rising or falling past an agreed price, or ‘barrier.’

The chase then takes place in the far larger spot FX market, where trillions of dollars are traded every day and help set benchmark foreign-exchange rates. If an FX option investor can find a time of day when there is little trading activity, or has chosen a lesser-traded currency to bet on, the people said, he or she can go into the spot market and nudge the rate toward or away from the barrier and pick up a handsome payout — or avoid handing one over.

Read full report: https://finance.yahoo.com/news/trader-arrested-ibiza-awaits-fx-110000117.html