Inside the banks’ forex trading scandal
Traders in the employ of 18 banks have been accused of colluding in order to manipulate the rand/dollar exchange rate. What has the impact of these revelations been and what are the possible ramifications for the banks involved?
evidence appears to be stacking up against the 18 local and international banks that stand accused in the South African foreign exchange (forex) trading scandal. On 20 February the Competition Commission, which referred a case to the Competition Tribunal for prosecution alleging that a number of banks colluded to manipulate the rand/dollar exchange rate, announced that Citibank would pay a fine of R69.5m as part of a settlement agreement for its part in the scandal.
But more crucially for the commission, Citibank has agreed to cooperate with investigators and make available witnesses to assist in the prosecution of the other banks that colluded in this matter. Competition Commissioner Tembinkosi Bonakele said the “full disclosure” that Citibank has agreed to will “strengthen the evidence for prosecution of the other banks”.
That evidence is already predicated on full disclosure from Absa and its parent company, Barclays, which are understood to have approached the commission with evidence of collusion in 2015.
Bonakele said the alleged collusion investigated by the commission would have had the effect of distorting the prices of forex trades and inflating the costs of trading. This would have particularly hurt importers and exporters in SA. If the currency were artificially weaker, it would negatively impact importers, while if it were artificially stronger, it would negatively impact exporters in the country.
The commission’s investigation followed hot on the heels of similar investigations and prosecutions in Europe and the US in 2014/15 (see sidebar).
The fines are mounting for some of the world’s largest banks and National Treasury officials have even suggested that the commission’s investigation may result in further penalties for South African banks with operations in the US.
When the commission launched its investigation in 2015, Bonakele insisted that the competition authorities were sending a clear message that it will pursue cartels wherever they operate, if their actions affect South Africa.
The 18 accused
The commission argues that between 2007 and 2013, the accused banks had a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades relating to currency trades between the US dollar and the rand. (See box.)
A spot transaction is a trade that is typically settled within two days from the transaction date or at a standard settlement date. A forward transaction occurs where the exchange rate is agreed in advance and the transaction is settled at a future date.
The commission also alleges that the banks and its competitors manipulated the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at particular times.
The accused banks are Bank of America Merrill Lynch International Ltd, BNP Paribas, JPMorgan Chase & Co, JPMorgan Chase Bank N.A., Investec Ltd, Standard New York Securities