Criminal Charges Expected In UK FX Manipulation Case

Criminal Charges Expected In UK FX Manipulation Case

British authorities are expected to begin criminal investigations into alleged rigging of global currency markets, according to a Reuters report.

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Investigations into charges that senior dealers at large banks colluded to rig currency markets  are now “well-advanced” in “several jurisdictions” including the United States and Switzerland, the report noted.  According to Martin Wheatley, head of Britain’s financial regulator FCA, charges could be “every bit as bad” as the Libor interest rate-fixing scandal which cost banks $6 billion in fines.  The FCA investigation is expected to run parallel with a criminal investigation and could run into 2015.

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Regulators in the United States, Britain, Europe and Asia are investigating if traders at approximately 15 of the world’s biggest banks colluded to use client order information improperly to influence benchmark rates used in the $5.3 trillion-a-day Foreign Exchange (FX) markets.  According to the report, the U.S. investigation into the alleged market manipulation has involved asked more than a dozen banks for documents, including Barclays PLC (LON:BARC), Credit Suisse Group AG (VTX:CSGN) Deutsche Bank (NYSE:DB), Goldman Sachs Group Inc (NYSE:GS), Lloyds Banking Group PLC (LON:LLOY), Royal Bank of Scotland Group plc (LON:RBS) , Societe Generale SA (EPA:GLE) and Standard Chartered PLC (LON:STAN).  The top ten banks are involved in 75% of global FX trading, according to a Euromoney poll, not all of it proprietary and much of it done on behalf of asset manager clients.

Chat room participants included “The Cartel” and “The Bandits Club”

After groups of proprietary bank traders were alleged to have shared market-sensitive information in chat rooms using names such as “The Cartel” and “The Bandits’ Club,” banks in London and New York have engaged in a series of employee dismissals.  While the banks deny any link between the employee dismissals and the investigation, the report says “a number of sources have said the moves are the result of internal investigations.”

Self regulation: “Let’s treat it as criminal activity and move on”

The dismissals were followed by the ACI, a non-profit association that represents market professionals in FX and money markets, saying the goal was to root out wrongdoers. “You can get people who participate in insider trading and who commit fraud but these are matters for individuals who have no place in our markets and should be rooted out,” David Woolcock, deputy head of ACI’s foreign exchange committee, said in the report. “If some individuals are misbehaving and engaging in criminal activity, let’s treat it as criminal activity and move on.”

The ACI has nearly 13,000 financial market professional as members across the globe and includes some of the largest asset managers and brokerage houses and has become a forum for discussing trading issues in the foreign exchange market, the report noted.  ACI’s code of conduct “sets standards for behavior by participants in what has always been a largely self-regulated market,” the report said, noting that Woolcock said there was no case as of yet for moving away from that model.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)
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