Bank probes find forex manipulation

The Singapore discovery widens lending rate scandal

Internal reviews by banks in Singapore have found evidence that traders colluded to manipulate rates in the offshore foreign exchange (forex) market, according to a source with knowledge of the inquiries.

SINGAPORE: Internal reviews by banks in Singapore have found evidence that traders colluded to manipulate rates in the offshore foreign exchange (forex) market, according to a source with knowledge of the inquiries.

The discovery widens a global lending rate scandal into new markets, as fallout from the London interbank offered rate (Libor) case puts banks under added scrutiny and spurs both regulators and institutions to reconsider how certain key interest and currency rates are set.

The probes found evidence showing that traders from several banks communicated with each other over electronic messaging about what rates they were going to submit for the local banking association’s fixings for non-deliverable foreign exchange forwards (NDFs), aiming to benefit their trading books.

“Traders were talking to traders, saying: ‘I need you to help me today, I need to fix low,’” said the bank source, who asked not to be identified due to the confidential nature of the reviews.

NDFs are derivatives that let companies and investors hedge or speculate on emerging market currencies when exchange controls make it difficult for foreigners to participate directly in the spot market.

The contracts are settled in dollars, so there is no exchange of the underlying currency, but they can affect spot exchange rates.

The Monetary Authority of Singapore ordered banks that help set local interbank lending rates and NDF rates to review the fixing process last year as US and British regulators cracked down on manipulation of the Libor, a benchmark used to set interest rates for around US$600 trillion worth of securities.

The investigations into Libor led to fines of US$1.5bil for UBS AG and US$451mil for Barclays Plc for rate rigging. Regulatory probes stemming from the Libor cases in the United States and Britain have also revealed evidence of attempted manipulation of benchmark interbank lending rates in Tokyo, Hong Kong and Australia.

Banking watchdogs in Britain and elsewhere in Europe have begun trying to reform the way Libor and other interbank rates are set, to try to ensure the numbers can’t be manipulated.

The Singapore bank probes show that the focus is now turning to other benchmarks, amid concern that they too were manipulated.

The biggest banks in the Asian NDF markets include UBS, JPMorgan Chase & Co, DBS Group Holdings Ltd and HSBC Holdings Plc.

The source did not make specific comments about possible wrongdoing by individual banks or traders and Reuters has no independent evidence of such wrongdoing.

UBS, JPMorgan, DBS and HSBC declined to comment. Reuters also contacted the other 14 banks involved in setting NDF rates. Twelve said they had no comment while two did not respond to repeated telephone and email requests for comment. —