Friday, October 11, 2013

US And European Regulators Probing FX Market Rigging

10 weeks ago we warned that the persistent "banging the close" action [7] in FX markets warranted an investigation into market rigging and manipulation. It seems the US, Swiss, UK, and EU regulators have finally woken up:
Of course, gold and silver remain highly efficient and "clean" markets...

As we noted 2 months ago... [7]
"Banging the close," is hardly a new 'event' but the ubiquity with which it is occurring around 4pm GMT (when major FX market benchmarks known as 'WM/Reuters rates' are set) is prompting authorities to investigate potential abuse of these benchmarks by the major banks. From Libor to ISDAFix and from base-and-precious metals to energy markets, adding the largest markets in the world - foreign exchange - to the banks' pernicious manipulations does not seem like a stretch. Critically, benchmark providers base daily valuations of indexes spanning different currencies on the 4 p.m. WM/Reuters rates (which in turn drives derivative settlements and triggers).
Stunningly, the same pattern - a sudden surge minutes before 4pm in London on the last trading day of the month, followed by a quick reversal - occurred 31% of the time across 14 FX pairs over 2 years, according to data compiled by Bloomberg [9]. For the most frequently traded pairs, such as EURUSD, it happened about half the time! U.S. regulators have sanctioned firms for banging the close in other markets; we await the results of the current probe...

Via Bloomberg,
The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said. The Federal Bureau of Investigation, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential.
The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it was reviewing potential manipulation of exchange rates. That month, allegations that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates were reported by Bloomberg News. Regulators are probing the alleged abuse of financial benchmarks used in markets from oil to interest rate swaps by the firms that play a central role in setting them.
European Union antitrust regulators are examining the possible manipulation of currency rates, following a Swiss probe into whether banks colluded to manipulate the $5.3 trillion-a-day foreign exchange market. Joaquin Almunia, the EU’s competition commissioner, said he learned in the last few days of activities that “could mean violation of competition rules around the possible manipulation of types of exchange rates,” according to a live chat on the EU’s website Oct. 7. ?