Swiss regulators said they’re investigating several banks for allegedly colluding to manipulate the $5.3 trillion-a-day foreign exchange market.
The probes come after Bloomberg News reported in June that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates. Britain’s Financial Conduct Authority said that month it was reviewing the allegations. The U.S. Commodity Futures Trading Commission has also been reviewing potential violations of the law with regards to foreign currency markets, according to a person familiar with the matter who asked not to be identified.
Authorities around the world are investigating the alleged abuse of financial benchmarks by the firms that play a central role in setting them. UBS AG (UBSN), Switzerland’s largest bank, was among four firms fined about $2.6 billion for rigging the London interbank offered rate, the benchmark for more than $300 trillion of securities worldwide.
European regulators are reviewing allegations of collusion in crude oil and biofuels markets, while the CFTC and FCA are also probing the potential manipulation of ISDAfix, a benchmark for interest-rate swaps.
In yesterday’s statement, Finma didn’t identify which firms it’s investigating or give details of the scope of its probe. The Swiss competition commission said it will decide at a later point what further action to take. Vinzenz Mathys, a spokesman for Bern-based Finma, declined to comment further.
UBS is among the banks being probed by Swiss regulators, the Financial Times said today, citing unidentified sources. Dominik Von Arx, a London-based UBS spokesman, declined to comment. Marc Dosch at Credit Suisse Group AG (CSGN) declined to comment.
UBS closed at 18.56 francs, up 0.5 percent in Zurich, while Credit Suisse gained 0.6 percent to 28.23 francs.
Britain’s FCA yesterday reiterated its June statement that it has been speaking to the “relevant” parties. The regulator has separately requested information from four banks including Frankfurt-based Deutsche Bank AG (DBK) and Citigroup Inc. (C), a person with knowledge of the matter who asked not to be identified said in June. The Hong Kong Monetary Authority said in a statement yesterday it will “closely monitor” developments.
About four banks account for more than half of all trading in the foreign-exchange market, according to a May survey by Euromoney Institutional Investor Plc. (ERM) Deutsche Bank is No. 1 with a 15 percent share, followed by Citigroup with almost 15 percent and London-based Barclays Plc (BARC) and UBS, which each have 10 percent. Giles Croot, a spokesman for Barclays, Sebastian Howell at Deutsche Bank and Jeffrey French at Citigroup declined to comment.
Traders at some of the world’s largest banks sought to manipulate the WM/Reuters currency rates in their favor by pushing through trades before and during the 60-second windows when the benchmarks are set, five current and former dealers with knowledge of the practice said in June. Some dealers colluded with counterparts to boost their chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.
The WM/Reuters rates are used by fund managers to determine what they pay for currencies and to compute the day-to-day value of their holdings, and by index providers such as FTSE Group and MSCI Inc. (MSCI) that track stocks and bonds in multiple countries. While the rates aren’t followed by most investors, even small movements can affect the value of what Morningstar Inc. (MORN) estimates is $3.6 trillion in funds including pension and savings accounts that track global indexes.
Traders said that because they agree to deal at the 4 p.m. WM/Reuters price, they have to push through the bulk of their trades during the window when the rate is calculated to minimize potential losses. That leads to a surge in trading volume, which can intensify any moves, they said.