Top global banks face forex rigging probes
From their desks at some of the world's biggest banks, traders
exchanged a series of instant messages that earned them the nickname
"the cartel."
Much like companies that rigged the price of vitamins and animal feed, the traders were competitors that hatched alliances for their own profits, federal investigators suspect.
If those suspicions are correct, the group of traders shared a mission to alter the price of foreign currencies, the largest and yet least regulated market in the financial world. And ultimately, they flooded the market with trades that potentially raised the cost of currency for clients but aided the banks' own investments.
Now the instant messages, along with similar activity among other traders, are at the centre of a global investigation into banks like Barclays, the Royal Bank of Scotland and Citigroup,
according to recent public disclosures by the banks and interviews with
investigators who spoke on the condition of anonymity. The
investigators secured the cooperation of at least one trader, a
development that has not been previously disclosed.
Although the investigation is at an early stage, authorities are signaling the likelihood of a legal crackdown.
"The manipulation we've seen so far may just be the tip of the iceberg," US attorney general Eric H Holder Jr said in a rare interview discussing an active investigation. "We've recognized that this is potentially an extremely consequential investigation."
The banks all declined to comment. No one has been accused of wrongdoing, and any improper actions probably would have involved only a corner of the overall market.
One former member of the group called the "cartel" has told colleagues that the nickname reflected the traders' success, not any improper collusion, according to a person briefed on the group. The group was informal, the person said, and its name came from outside traders.
But coming fast on the heels of a similar investigation into the rigging of global interest rates, the latest scrutiny has unnerved the world's biggest banks, setting off internal scrambles to contain the damage. Nine of the largest banks in currency trading have announced they are facing inquiries. The banks placed about a dozen traders on leave pending the outcome of the inquiry.
The priority that investigators are giving the case, which focuses on trading over the last decade, reflects the significance of the market in the world's major currencies itself. With trading of more than $5 trillion a day, it dwarfs any stock or bond market.
Further underscoring its importance, pension funds and other investment managers value their portfolios using a benchmark of the currency market. An independent service publishes that benchmark, which is at the centre of the investigation.
The investigations were born from the last major financial scandal, the rigging of interest rate benchmarks known as the London interbank offered rate, or Libor. Many of the same banks under investigation in the currency case, including Barclays, have paid large fines to settle the Libor cases.
Authorities say they suspect that traders used the chat rooms to lay out their strategies. The traders, using information gleaned from their clients, are suspected of agreeing to flood the market with orders for currencies at an opportune time each day.
That time came just seconds before an independent service, WM Co, set some of the benchmark rates. The most important rate is based on trades in a period shortly before 4 pm London time, so a flurry of last-second orders from banks could alter the rate in their favor.
Much like companies that rigged the price of vitamins and animal feed, the traders were competitors that hatched alliances for their own profits, federal investigators suspect.
If those suspicions are correct, the group of traders shared a mission to alter the price of foreign currencies, the largest and yet least regulated market in the financial world. And ultimately, they flooded the market with trades that potentially raised the cost of currency for clients but aided the banks' own investments.
Now the instant messages, along with similar activity among other traders, are at the centre of a global investigation into banks like Barclays, the Royal Bank of Scotland and Citigroup,
according to recent public disclosures by the banks and interviews with
investigators who spoke on the condition of anonymity. The
investigators secured the cooperation of at least one trader, a
development that has not been previously disclosed. Although the investigation is at an early stage, authorities are signaling the likelihood of a legal crackdown.
"The manipulation we've seen so far may just be the tip of the iceberg," US attorney general Eric H Holder Jr said in a rare interview discussing an active investigation. "We've recognized that this is potentially an extremely consequential investigation."
The banks all declined to comment. No one has been accused of wrongdoing, and any improper actions probably would have involved only a corner of the overall market.
One former member of the group called the "cartel" has told colleagues that the nickname reflected the traders' success, not any improper collusion, according to a person briefed on the group. The group was informal, the person said, and its name came from outside traders.
But coming fast on the heels of a similar investigation into the rigging of global interest rates, the latest scrutiny has unnerved the world's biggest banks, setting off internal scrambles to contain the damage. Nine of the largest banks in currency trading have announced they are facing inquiries. The banks placed about a dozen traders on leave pending the outcome of the inquiry.
The priority that investigators are giving the case, which focuses on trading over the last decade, reflects the significance of the market in the world's major currencies itself. With trading of more than $5 trillion a day, it dwarfs any stock or bond market.
Further underscoring its importance, pension funds and other investment managers value their portfolios using a benchmark of the currency market. An independent service publishes that benchmark, which is at the centre of the investigation.
The investigations were born from the last major financial scandal, the rigging of interest rate benchmarks known as the London interbank offered rate, or Libor. Many of the same banks under investigation in the currency case, including Barclays, have paid large fines to settle the Libor cases.
Authorities say they suspect that traders used the chat rooms to lay out their strategies. The traders, using information gleaned from their clients, are suspected of agreeing to flood the market with orders for currencies at an opportune time each day.
That time came just seconds before an independent service, WM Co, set some of the benchmark rates. The most important rate is based on trades in a period shortly before 4 pm London time, so a flurry of last-second orders from banks could alter the rate in their favor.
vijay kr yadav
pgdm sem-1
sou- times of india
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