Currency Traders Told Bank of England of Fix Practices in 2012
Bloomberg: Bank of England officials discussed trading practices around key foreign-exchange benchmarks with senior currency dealers 18 months before regulators opened formal investigations into alleged rate-rigging.
Records of a meeting in April 2012 released yesterday by the central bank show dealers discussed the rules they were subject to when trading close to the times when key market benchmarks, such as the WM/Reuters rates, are set.
The traders, concerned by regulators’ scrutiny of instant messages in the London interbank offered rate probe, talked about how they shared information about orders to reduce the risk of losses in the minutes before benchmarks are calculated, said two people with knowledge of the meeting who asked not to be identified because the meeting was private. Investigators are deciding whether those communications amount to collusion.
The discussion raises the question of how much Bank of England officials, already criticized by lawmakers for failing to heed warnings Libor was vulnerable to abuse, knew about the potential for manipulation of the $5.3 trillion-a-day currency market before regulators opened their formal probes. Three members of the panel, two of whom were at the meeting at BNP Paribas SA’s London office, have since been fired, suspended or put on leave by their firms.
“There was a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set piece benchmark fixings,” according to the summary of the April 23, 2012 meeting of the chief dealers’ subgroup of the Bank of England’s foreign exchange joint standing committee.
Chief Dealers
Officials at the Bank of England declined to comment on whether the use of instant-message groups to communicate orders was raised at the meeting.
The chief dealers’ subgroup, set up in 2005, brings together Bank of England officials with 11 spot traders from the world’s largest banks, according to a filing last year. They met three times in 2012 to discuss issues such as the state of the market and the impact of impending rules.
Regulators are examining evidence first reported by Bloomberg News in June that traders at the world’s largest banks colluded to manipulate the WM/Reuters rates, used by money managers to determine the value of holdings in different currencies. At least a dozen firms have been contacted by authorities and more than 13 traders have since been suspended, put on leave or fired.
‘The Cartel’
At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia.” Their members exchanged information on client orders and agreed how to trade at the fix through the messaging platforms, five people with knowledge of the investigations said last month.
Traders on the chats say they were merely matching buyers and sellers ahead of the fix to minimize losses by avoiding trades at a time when prices typically fluctuate the most.
Citigroup Inc.’s former head of G-10 spot currency trading Rohan Ramchandani was on several of the message groups, people with knowledge of the investigation have said. He was present at the April meeting and has since been fired. Niall O’Riordan, suspended as co-chief dealer by UBS AG, was also present at the meeting. JPMorgan Chase & Co.’s London-based chief dealer, Richard Usher, another member of the panel, was absent. He has since been put on leave by his firm.
Libor Criticism
No individual has been accused of any wrongdoing. Spokesmen for UBS, BNP Paribas and JPMorgan declined to comment. Messages left on O’Riordan and Ramchandani’s mobile phones were not returned. Usher couldn’t be located through on-line searches or directory assistance.
In 2012, the Bank of England was criticized by lawmakers for failing to act on signs Libor, the benchmark for $300 trillion of securities worldwide, was vulnerable to rigging.
The Bank of England and the New York Federal Reserve discussed flaws in the rate-setting process for Libor in 2008 -- but didn’t act because the benchmark fell outside their jurisdiction. Rate-rigging continued at several of the largest banks for another two years, according to regulatory filings.
The WM/Reuters rates for 160 currencies, used as a benchmark by companies and investors around the world, are determined by trades executed in a minute-long period called “the fix,” starting 30 seconds before 4 p.m. in London.
The data is collected and distributed by World Markets Co., a unit of Boston-based State Street Corp., and Thomson Reuters Corp. Bloomberg LP competes with Thomson Reuters in providing news and information, as well as currency-trading systems and pricing data. Bloomberg LP also distributes the WM/Reuters rates on Bloomberg terminals.
reporters on this story: Gavin Finch in London