5 Things You Should Know About USA Forex Rigging Case
In November 2014 a settlement worth more than 4 billion dollars was reached between the USA’s big banks and their government over Forex rigging. In addition to this deal, a further $6 billion settlement looks to be nearing completion between the same banks (including JPMorgan Chase and Barclays) for distorting foreign exchange benchmarks.
Below are 5 things to bring you up to date with these events:
1) Who Is Suing The Banks?
The US Department of Justice, UK Financial Conduct Authority and New York Department of Financial Services have pressed charges against the five banks.
2) Who Is This Case Against?
The case is against Citigroup, RBS, UBS and Citigroup and JP Morgan chase and they are expected to settle for $6 billion. It should be noted that an earlier case last year saw banks such as HSBC and Bank of America settle their cases for just over 4 billion dollars.
3) What Did They Do Wrong
The banks are accused of rigging forex markets and possibly fraud with a lack of disclosure in regards to the level of profit made on the currency markets.
The way the banks fixed currency markets is through manipulating the WM/Reuters 4pm fix (one of currency markets principle benchmarks). The banks would buy and sell currency just before the 4pm deadline which would impact the final price of clients orders handled that day. Naturally this would lead to some forex traders being better off and some traders worse off but the banks could push the currency in the direction that benefited them the most.
4) Who Alerted The Regulators?
This is a bit grey but it’s public knowledge UBS provided information first to the regulators to ensure they got partial immunity although they still got a fine for fraud. Some experts argue that UBS in fact may face real issues as it may have broken other laws and regulations.
5) What After The Banks Please Guilty?
After the banks pay the $6 billion dollars they will need to ensure they can still trade financial products (especially those relating to forex markets). In Australia it’s common for the Australian watchdog to remove financial licenses for financial institutions either short-term or for good. In this case due to the size of the banks it’s more likely they will obtain waivers after the case but the fact these won’t be given out prior to settlement is making them naturally nervous.
Some additional fines may exist for UBS and Barclays as they had signed an agreement with the Department Of Justice in 2012 for previous wrongdoing saying they promised not to commit any crime for 2 years in the USA.
Overall, the majority of Australian forex traders will not have been impacted by these banks prior dealings as the main manipulation occurred at USA close which is extremely early in the morning within Australia. Australian forex traders are also unlikely to use these banks with most preferring specialist forex brokers such as Pepperstone, IC Markets and Easy Forex. It could be argued that strong regulation within Australia helps bring confidence for currency traders in Australia unlike their overseas counterparts.
Within Australia, the largest concern remains currency movements prior to key announcements such as rate statements. Most of the 2015 rate releases have seen large currency movements in the correct directions seconds before the announcement is made. Many experts believe this is due to individuals obtaining inside information although an investigation cleared any wrongdoing pointing to the fact that automated forex trading combined with low liquidity was causing the changes.
Insider trading, collusion and impropriety as seen above can cause dire consequences in financial markets and affect market confidence. With the rise in automated trading, market regulators such as in Australia have their work cut out for them to ensure market integrity is maintained at all times. Regulators, even though more often than not they do a good job, need to be ever so vigilant to keep illegal activity to a minimum.