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?

Finweek English Edition - - IN THE NEWS - By Lloyd Gedye


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

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