The cost of Forex manipulation (Part II)

The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Barclays Bank PLC (Barclays) for attempted manipulation, false reporting, and aiding and abetting other banks’ attempts to manipulate, global foreign exchange (FX) benchmark rates to benefit the positions of certain traders.

This Order requires Barclays to pay a civil monetary penalty of $400 million, cease and desist from further violations, and take specified steps to implement and strengthen its internal controls and procedures, including the supervision of its FX traders, to ensure the integrity of its participation in the fixing of foreign exchange benchmark rates and internal and external communications by traders.  

The Order notes that the $400 million civil monetary penalty reflects in part that Barclays did not settle at an earlier stage of the investigation.

On November 11, 2014, the CFTC imposed $1.475 billion in civil monetary penalties against five banks for similar misconduct (see CFTC Press Release 7056-14): In re Citibank, N.A., CFTC Docket No. 15-03) ($310 Million penalty); In re JPMorgan Chase Bank, N.A., CFTC Docket No. 15-04) ($310 Million penalty); In re The Royal Bank of Scotland plc, CFTC Docket No. 15-05) ($290 Million penalty); In re UBS AG, CFTC Docket No. 15-06) ($290 Million penalty); In re HSBC Bank plc, CFTC Docket No. 15-07) ($275 Million penalty).

Aitan Goelman, the CFTC’s Director of Enforcement, stated: “Ensuring the integrity of our markets and the public’s faith in that integrity is a core mission of the CFTC.  There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely-used benchmark in furtherance of their own narrow interests.  The CFTC will continue to bring these cases until the public can be confident in the integrity of benchmark rates.”

According to the Order, one of the primary benchmarks that Barclays FX traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates).

The WM/R Rates, the most widely referenced FX benchmark rates in the United States and globally, are used to establish the relative values of different currencies, which reflect the rates at which one currency is exchanged for another currency. 

Another FX benchmark rate that a Barclays FX trader attempted to manipulate is the Russian Ruble/U.S. Dollar Chicago Mercantile Exchange (CME)/EMTA, Inc. benchmark rate (CME/EMTA Rate) that is based on indicative bids and offers submitted by banks to the CME, who calculates and issues the CME/EMTA Rate as well as publishes the submitted bids and offers of each participant. 

FX benchmark rates, such as the WM/R Rates and the CME/EMTA Rate, are used for pricing of cross-currency swaps, foreign exchange swaps, spot transactions, forwards, options, futures and other financial derivative instruments.

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