An instant message group involving senior traders at banks including Barclays PLC, Citigroup Inc and Royal Bank of Scotland Group PLC is being scrutinized by regulators investigating potential manipulation of the foreign-exchange market, four people with knowledge of the probe said.
Over a period of at least three years, the dealers exchanged messages through Bloomberg terminals outlining details of their positions and client orders, and made trades before key benchmarks were set, said two of the people, who asked not to be identified because the inquiries are continuing.
The roster of firms changed over time and included other banks such as UBS AG as the men switched employers, one of the people said.
Two traders who were not involved in the conversations and who asked not to be identified because they do business with the people involved said that they and others in the market referred to the message group as “The Cartel.”
Regulators are weighing whether those messages amounted to attempts to manipulate the market, two people said.
The four banks account for more than 40 percent of trading in the US$5.3 trillion-a-day foreign-exchange market, according to a survey by Euromoney Institutional Investor PLC.
The UK’s Financial Conduct Authority this week opened a formal probe into currency trading, joining a global investigation that also involves regulators in the US, EU and Switzerland.
“If the information shared is sufficiently precise to indicate collusion, then the regulators will have a case for prosecution,” a lawyer at Corker Binning in London, David Corker, said.
Bloomberg News reported in June that traders at some banks said they shared information about their positions through instant messages, executed their own trades before client orders and sought to manipulate the benchmark WM/Reuters rates.
In August, Bloomberg News reported that recurring spikes in trading around the periods in which the rates are calculated suggested that dealers may have been trying to influence the benchmarks.
RBS handed over transcripts of the group’s conversations to the British regulator after concluding that a former senior dealer in London, Richard Usher, disclosed too much information to competitors, one of the people said.
One trader who participated in the group said the messages sought only to match buyers and sellers for large orders and there was no wrongdoing, according to a person briefed on the exchanges between the traders.
Firms across the industry have been reviewing records of instant messages, e-mails, phone calls and trading data, according to people with knowledge of the probe.
Banks, their lawyers and the regulators are sifting through years of conversations peppered with industry jargon and shorthand terms, a process that may take months, one source said.
The WM/Reuters rates determine what many pension funds and money managers pay for their foreign exchange and are used by index providers such as FTSE Group and MSCI Inc to calculate daily valuations of indexes that span multiple currencies.
Even small movements could affect the value of what Morningstar Inc estimates is US$3.6 trillion in funds, including pension and savings accounts that track global indexes.