UK Regulators Investigate Forex Rate-Rigging

UK Regulators Investigate Forex Rate-Rigging

Britain’s market supervisor is examining the reported manipulative practices in the forex rates.

UK Regulators Investigate Forex Rate-Rigging

Earlier Bloomberg has reported that traders at some of the world’s leading banks have reportedly engaged in manipulative practices to rig forex rates.

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Regulators Seeking More Imformation On The Forex Rates Rigging

Britain’s financial regulator said on Wednesday that The Financial Conduct Authority is talking to individuals in the foreign exchange market. The regulator is also seeking more information about claims on the forex rates rigging.

The Financial Conduct Authority is reportedly considering opening a probe into the potential manipulation of the forex rates. The FCA is already working to review the integrity of benchmarks, including those used in valuing derivatives and commodities.

Earlier three lenders were fined about $2.5 billion for rigging the London interbank offered rate, or Libor. The regulators have found that in an attempt to rig Libor, traders at Barclays PLC (NYSE:BCS) (LON:BARC), Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) and UBS AG (NYSE:UBS) misstated their firms’ cost of borrowing and colluded with counterparts at other banks to profit from bets on derivatives. The regulators are also investigating benchmarks for the crude-oil and swaps markets.

WM/Reuters rates were introduced in 1994 and are extensively used by fund managers to compute the day-to-day value of their holdings and by index providers to track stocks and bonds in multiple currencies.  The forex rates are also used in forwards and other contracts.

The rates are published for 160 currencies every hour and half-hourly for 21 of them. For the 21, the benchmarks are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour.

Quoting five people having knowledge of the foreign-exchange market practice, Lim Vaughan, Gavin Finch and Ambereen Choudhury of  Bloomberg reports the banks’ employees have been accused of rigging WM/Reuters rates before and during the 60-second windows when the benchmarks are set.

Spot foreign-exchange transactions aren’t considered financial instruments in the same way as stocks and bonds. They fall outside the European Union’s Markets in Financial Instruments Directive, or Mifid, which requires dealers to take all reasonable steps to ensure the best possible results for their clients.

While U.K. regulators require dealers to act with integrity and avoid conflicts, there are no specific rules or agencies governing spot forex trading in Britain or the U.S.

As the forex market is not regulated, any F.C.A. inquiry would focus on individuals authorized by the regulator to act in the market and whether companies did enough to prevent market abuse.

The FCA spokesman Stewart Todd indicated the authority is aware of these allegations and has been speaking to the relevant parties.

According to the earlier report, dealers colluded with counterparts to boost chances of moving forex rates. The decade-long practice has reportedly been in vogue in the spot forex market, affecting the value of funds and derivatives.

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