The criminal trial and subsequent conviction of former HSBC foreign currency exchange (forex) executive Mark Johnson raises a host of questions for banks around the world who engage in prehedging and front-running in connection with forex deals.

Speaking to Law360, Partner Scott Schirick discussed how Johnson's conviction on fraud and conspiracy charges could also leave open questions for other institutional entities, such as central banks, which dominate the largely unregulated forex market. "This is one that will reverberate on desks in Hong Kong, in Tokyo, all across the continent, as well as in New York and other places in the U.S.," Schirick said.

Prior to the news of Johnson's conviction, Schirick penned an expert analysis for Law360 in which he wrote that Johnson's prosecution would test whether the government could turn sharp dealing and deception in the unregulated institutional spot forex market into criminal fraud.

Schirick explained that the practice of prehedging - which Johnson and his lawyers attempted to defend at trial - is actually a common industry practice in the forex market, but now will present a challenge to banks' forex trading desks. "Distinguishing between prehedging in anticipation of a client order on one hand and improper and now illegal front-running on the other is not always very easy," he told Law360, "and I think that presents a real compliance challenge for banks going forward."

Schirick went on to say that while the insider trading comparison has some limits in the law, to a jury it can make sense. "I think that may be telling as to how the government sees future cases, in this market, in this area. They're going to look at it as we're essentially trying to prevent insider trading in the FX markets. Because front-running, prehedging — these things are far less familiar and not as easy to grasp."

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