The currency investigations are taking place as authorities grapple with a widening list of scandals involving the manipulation by banks of benchmark financial rates, including the London interbank offered rate, or Libor, and ISDAfix, used to determine the value of interest-rate derivatives. The U.K. regulator also is reviewing how prices are set in the $20 trillion gold market, according to a person with knowledge of the matter.
“Some of these problems developed over many years without anybody speaking up,” said Andrew Tyrie, chairman of Britain’s Commission on Banking Standards and Parliament’s Treasury Select Committee. “This is remarkable. It suggests something very wrong with the culture at these institutions.”
The story published by Bloomberg News in June, based on interviews with current and former traders, triggered internal probes as banks began reviewing millions of instant messages, e-mails and transcripts of phone calls to see whether employees attempted to rig rates. It also prompted investigations by the U.K.’s Financial Conduct Authority, the European Union, the Swiss Competition Commission and the U.S. Department of Justice.
In addition to seeking evidence of collusion, the FCA is looking into whether traders cut deals for personal profit before completing customers’ orders, according to a person with knowledge of the probe. Bloomberg News reported in November, based on the accounts of two people who witnessed the transactions, that some dealers placed side bets for personal accounts or through friends in exchange for cash payments.
At least 12 currency traders have been suspended or put on leave by banks as a result of internal probes, and 11 firms have said they were contacted by authorities. Government-controlled Royal Bank of Scotland Group Plc turned over transcripts of instant messages. Deutsche Bank AG, Germany’s largest lender, said it’s cooperating with regulators and Zurich-based UBS, the world’s fourth-biggest currency dealer, said it’s taking unspecified disciplinary measures against employees.
Britain’s FCA, which has about 60 people working on benchmark investigations, has asked foreign-exchange traders to come in for voluntary interviews, according to the people with knowledge of the probe. The individuals are among at least 40 traders whose communications are being reviewed, one of them said. The conversations being examined date back to 2004, another said. Chris Hamilton, a spokesman for the FCA, declined to comment.
The Justice Department has issued subpoenas to banks, according to three people with knowledge of the probe who asked not to be identified because the investigation is confidential.
“The criminal and antitrust divisions have an active, ongoing investigation into possible manipulation of foreign-exchange rates,” Peter Carr, a department spokesman, said in an e-mail. He declined to name any specific institutions.
EU competition commissioner Joaquin Almunia said in October the Brussels regulator’s probe into currency markets was at a “very preliminary” stage. Several banks have come forward with information on possible rigging in the hope of winning leniency, Almunia’s spokesman Antoine Colombani said in November.
None of the traders or the banks they work for has been accused of wrongdoing.
The investigations have had repercussions across the industry. UBS, RBS, Citigroup, Deutsche Bank and Lloyds Banking Group Plc have banned traders from using multibank chat rooms, people at the firms said. Investors are breaking their orders into smaller units and using more banks to reduce the opportunity for front-running, one of Europe’s largest money managers said.
One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” -- JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS -- according to the people with knowledge of the probe. Their banks controlled more than 40% of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.
Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.
Regulators are examining whether discussions among the traders amounted to collusion -- if, with a few keystrokes, they were able to push around rates to boost bank profits and their own bonuses. Traders on the chat deny that, saying they were merely matching buyers and sellers ahead of the fix. That way they could minimize losses by avoiding trades at a time of day when prices typically fluctuate the most, they said.
The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.
The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.
Usher, Ramchandani and Gardiner, along with at least two other dealers over the years, would discuss their customers’ trades and agree on exactly when they planned to execute them to maximize their chances of moving the 4 p.m. fix, two of the people said. When exchange rates moved their way, they would send written slaps on the back for a job well done.