Washington opens probe into rigging of currency market


Sun, Oct 13, 2013 - Page 13

The US Department of Justice has opened a criminal investigation of possible manipulation of the US$5.3 trillion-a-day foreign exchange market, a person familiar with the matter said.

The FBI, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential.

The US investigation comes as the UK Financial Conduct Authority (FCA) said in June it was reviewing potential manipulation of exchange rates. That month, allegations that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates were reported by Bloomberg News. Regulators are probing the alleged abuse of financial benchmarks used in markets from oil to interest rate swaps by the firms that play a central role in setting them.

Swiss regulators said last week they were “coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.”

The probes include alleged manipulation of ISDAfix, a benchmark in the US$379 trillion market for interest-rate swaps.

The International Organization of Securities Commissions, the group representing regulators from more than 100 countries, set tougher guidelines for publishing benchmarks in a July 17 report, including making prices based on “observable” deals where possible to increase transparency.

Regulators may examine commodities markets, having already increased investigations of manipulation of benchmarks for oil, interest rates, derivatives and foreign exchange.

EU investigators searched the offices of Platts, the unit of New York-based McGraw Hill Financial Inc that assesses the price of Dated Brent, the benchmark for more than half of the world’s crude. Kathleen Tanzy, a spokeswoman for Platts, said in an e-mailed statement on Friday last week that the company’s “aim is to bring transparency to price discovery by publishing as much detailed and meaningful information as possible.”

In a Bloomberg News survey conducted over eight weeks, commodities traders who buy and sell as much as US$5.67 trillion of raw materials a year say the benchmark prices for everything from oil to iron ore to gasoline are wrong as often as 27 percent of the time.

The person familiar with the US currency market probe did not say which banks may be under scrutiny.

Probes of Libor manipulation led to fines totaling about US$2.6 billion against four firms, including UBS AG, Switzerland’s largest bank, for rigging the benchmark for more than US$300 trillion of securities worldwide.

Earlier this week, EU antitrust regulators said they were examining the possible manipulation of currency rates by the financial industry, while Switzerland’s Financial Market Supervisory Authority and the nation’s competition commission said they were probing similar potential wrongdoing.