Was FX benchmark manipulation the exception or the norm?
Yesterday we bumped into a revealing article providing some more precise details about the foreign exchange manipulation investigations in the Financial Times called “Biggest banks face forex probe questions”. As it turns out, according to the newspaper’s sources close to the forex probe, there are several forex pairs that are being closely scrutinized. Dealings in sterling, Australian dollar and some Scandinavian currencies are making the probe more widespread than initially assumed.
The Financial Times proceeds by stating that while concerns of financial regulators were continuously dispelled by senior traders and internal reviews by the banks, this year the FCA was approached by a whistleblower according to people who are familiar with the investigation.
Big banks are scrambling to provide information to the investigating authorities hoping for some mercy in the future, while EU commisioner Joaquin Almunia stated that the commission’s resources are still focused on settling with banks who participated in the Libor fixing scandal. He was quoted by the newspaper to say that “Perhaps manipulation is not the exception but the rule”.
Many institutional and soon enough retail traders might be asking themselves the same question. Reality might uncover that they have been competing against parties which are out of their league.
The article concludes with the notion implied by bankers that the FX market is too big to be manipulated are not very close to reality. A large asset manager executive has said that despite the size of the market an order of about $200 mln could be large enough to influence prices substantially depending on market conditions.
The allegations surrounding the 4pm fix manipulation have led financial regulators around the world to investigate some of the world’s leading financial institutions active in currency markets. It has also led to the leave /suspension of senior FX traders at a number of leading banks. And not surprisingly the lawsuits from supposedly wronged FX clients have begun.
The full FT article, which reveals more details is available here.
For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.