Internal reviews by banks in Singapore have found evidence that traders colluded to manipulate rates in the offshore foreign exchange market, a source with knowledge of the inquiries said.
The discovery widens a global lending rate scandal into new markets, as fallout from the London Interbank Offered Rate (LIBOR) case puts banks under added scrutiny and spurs both regulators and institutions to reconsider how certain key interest and currency rates are set.
The probes found evidence showing that traders from several banks communicated with each other over electronic messaging about what rates they were going to submit for the local banking association’s fixings for non-deliverable foreign exchange forwards (NDFs), aiming to benefit their trading books.
“Traders were talking to traders, saying: ‘I need you to help me today, I need to fix low,’” said the bank source, who asked not to be identified due to the confidential nature of the reviews.
NDFs are derivatives that let companies and investors hedge or speculate on emerging market currencies when exchange controls make it difficult for foreigners to participate directly in the spot market.
The contracts are settled in dollars, so there is no exchange of the underlying currency, but they can affect spot exchange rates.
The Monetary Authority of Singapore (MAS) ordered banks that help set local interbank lending rates and NDF rates to review the fixing process last year as US and British regulators cracked down on manipulation of the LIBOR, a benchmark used to set interest rates for about US$600 trillion worth of securities.
The investigations into LIBOR led to fines of US$1.5 billion for UBS AG and US$451 million for Barclays PLC for rate rigging.
Regulatory probes stemming from the LIBOR cases in the US and Britain have also revealed evidence of attempted manipulation of benchmark interbank lending rates in Tokyo, Hong Kong and Australia.
Banking watchdogs in Britain and elsewhere in Europe have begun trying to reform the way LIBOR and other interbank rates are set to try to ensure the numbers cannot be manipulated.
The Singapore bank probes show that the focus is now turning to other benchmarks, amid concern that they too were manipulated.
The biggest banks in the Asian NDF markets include UBS, JPMorgan Chase & Co, DBS Group Holdings Ltd and HSBC Holdings PLC.
The source did not make specific comments about possible wrongdoing by individual banks or traders and Reuters has no independent evidence of such wrongdoing.
UBS, JPMorgan, DBS and HSBC declined to comment.
Reuters also contacted the other 14 banks involved in setting NDF rates.
Twelve said they had no comment, while two did not respond to repeated telephone and e-mail requests for comment.
In Singapore, benchmark rates for both interbank lending and certain NDFs are set by panels of banks organized by the Association of Banks in Singapore (ABS).
Thomson Reuters, parent company of Reuters News, calculates and distributes the spot reference rates for the Indonesian rupiah, Malaysian ringgit and Vietnamese dong NDF markets on behalf of the ABS, as well as other interbank lending and currency rates.
“Thomson Reuters supports any measures that create more robust benchmarks for the market and we fully cooperate with regulators, authorities and benchmark sponsors’ investigations as required,” a Thomson Reuters spokeswoman said.
Last month, the MAS issued a statement setting out the banks’ obligations under the reviews, although it has not made clear whether it would take action of its own based on the results.
“The banks have to immediately report any irregularities they uncover to MAS, and have to take appropriate disciplinary action against staff involved in such irregularities,” the statement said. “The reviews are ongoing, and it is premature to speculate on the outcome of these reviews at this stage.”
Singapore’s central bank provided no further comment when asked about the probes’ findings.
The source said most banks had submitted their reviews to the authorities at the end of last year, but did not say what disciplinary actions if any were planned for banks or traders who tried to manipulate rates.
The MAS said last year that it was working with the ABS to review the way NDF rates and the city state’s benchmark lending rates are set.
The association declined to comment for this story.
Many of the traders involved were junior and did not appear to think they were doing anything wrong, the source said.
Of the 40 to 50 NDF traders based in Singapore, roughly half had either been put on leave, including those suspended while their activities in the market were under investigation, or left their jobs during the Singapore probes, the source said.
It was not clear how many may have been or will be reinstated after the probes’ completion.
“A lot of banks are stuck, traders are suspended or have left, so the market is seeing around half its usual volume,” the source said.
Flows in Indonesian rupiah and Malaysian ringgit NDFs have been thin since the last quarter of last year, according to Thomson Reuters IFR Markets, although volumes in ringgit NDFs picked up at the start of this year.