U.S., British And Swiss Regulators Fine Five Banks For Their Conduct On FX Markets

Author:Mr Anthony Maton and Laurent Geelhand
Profession:Hausfeld & Co LLP
 
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Regulators imposed total fines of $3.3 billion (£2 billion) on Citibank, HSBC, JPMorgan Chase, The Royal Bank of Scotland and UBS for their conduct on FX markets between January 2008 and October 2013.

The Foreign Exchange ("FX") market is the largest financial market in the world, with a daily average turnover of $5.3 trillion, 40% of which takes place in London. An important part of the FX market derives from the financial activities of investment vehicles seeking to protect themselves from unwanted movements in the FX market by hedging their positions through FX‐based derivatives and repatriate global currency holdings through FX spot trading.

Currency benchmark rates

FX transactions are most frequently based on WM/ Reuters "Closing Spot Rates". These rates are calculated using the median of all currency trades in a minute‐long period starting 30 seconds before 4:00pm London time. Banks often guarantee to clients that transactions on the FX market will be done at the WM/Reuters Closing Spot Rates, which are favoured by clients as a means of valuing global currency holdings and indexes that span multiple currencies.

Manipulation of the FX market

From September 2013 onwards, evidence has come to light suggesting that, since at least 2008, banks have inappropriately shared market-sensitive information with rivals and manipulated WM/Reuters Closing Spot Rates. FX traders, who typically communicate via email, chat rooms, and instant messages, suspiciously referred to themselves as "The Cartel" "The Bandits' Club" and "The Mafia" amongst other names. Since this evidence has come to light, regulators have raided suspected banks in the United States, the United Kingdom, Germany, Switzerland, Hong Kong, Singapore, Australia and New Zealand.

Regulatory fines

On 12 November 2014, the U.S., British and Swiss regulators imposed total fines of $3.3 billion (£2 billion) on Citibank, HSBC, JPMorgan Chase, The Royal Bank of Scotland and UBS for their conduct on FX markets between January 2008 and October 2013. The investigation into Barclays Bank continues. The regulators' investigations focused on G10 spot FX currency rates, which comprise US Dollar, Euro, Japanese Yen, British Pound, Swiss France, Australian Dollar, New Zealand Dollar, Canadian Dollar, Norwegian Krone and Swedish Krona.

Impact on investors

Various firms of economists and other financial experts have carried out preliminary studies of the potential losses corporate users may have suffered from...

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