FOREX Manipulation Leads to Record Fines

forexRecord fines have been handed down to five of the world’s biggest names in banking, primarily for manipulation of the foreign exchange (FOREX) market. The fines total US$ £3.6 billion, and have been handed to UBS, Barclays, JPMorgan, Citigroup and RBS.

The fines did encompass other offences, but primarily stem from manipulation of the world’s currency market. The largest single portion of the fine, US$2.4 billion (£1.5 billion), was handed to Barclays. Back in November, Barclays was the only one of the five which did not cooperate with the investigative efforts of regulators in the UK, the US and Switzerland.

UBS is to plead guilty to the offence of rigging benchmark interest rates, while the other four banks have agreed to enter guilty pleas for a range of criminal charges in the US. Barclays is also dismissing eight of its employees who were involved in the offences.

According to Loretta Lynch, US Attorney General, “countless consumers, investors and institutions around the world” have been harmed by the five banks and their manipulation of the markets. For half a decade beginning in 2007, Lynch said, currency traders working at the banks used private chat rooms to coordinate their efforts and manipulate the movements of exchange rates. These activities took place, she said, “almost every day” during that five year period.

These cartels of traders were coordinating their activities in order to deliberately impact the market, and then using the predictable results for personal gain. Several different strategies were used in order to pull this off, usually deployed in the same 30 second period around 16:00 hours GMT. This became known as the “4pm” fix or simply “the fix.”

One tactic used was for one member of the cartel to build up a significant position in one particular currency, then would abandon that position all at once in order to prompt a market movement. Other members of the cartel would, of course, have been informed of this ahead of time and would take the necessary steps to profit from that movement. Benjamin Lawsky, New York State superintendent of financial services, described their activities as “a brazen ‘heads I win, tails you lose’ scheme” through which they would “rip off their clients.”

Another bank, Bank of America, has been fined US$205 million (£130.8 million) by the Federal Reserve in a separate case of FOREX rigging. While the other five banks received their fines as a result of the combined efforts of the Federal Reserve and the US Department of Justice, Bank of America was handed its penalty by the Federal Reserve exclusively.