The currency market, the biggest in the financial system, is one of the least regulated as it takes place away from exchanges. Traders colluded with counterparts at other firms to boost chances of moving the WM/Reuters rates, according to two of the people with knowledge of the manipulation.
The data are collected and distributed by World Markets Co., a unit of Boston-based State Street Corp., and Thomson Reuters Corp. Bloomberg LP, the parent company of Bloomberg News, competes with New York-based Thomson Reuters in providing news and information, as well as currency-trading systems and pricing data. Bloomberg LP also distributes the WM/Reuters rates on Bloomberg terminals.
“The process for capturing this information and calculating the spot fixings is automated and anonymous, and the rates are monitored for quality and accuracy,” State Street said in an e-mailed statement. The data are derived from “multiple execution venues through a streaming rather than solicitation process,” the company said.
Spot foreign-exchange transactions aren’t considered financial instruments in the same way as stocks and bonds. They fall outside the EU’s Markets in Financial Instruments Directive, which requires dealers to take all reasonable steps to ensure the best possible results for their clients.
That should be changed, according to Bowles, the EU lawmaker who unsuccessfully applied to be governor of the Bank of England last year.
Market abuses are “part of the bonus culture,” Bowles said. “You are in a competitive race to show you are better and can earn more.”