The US Justice Department is making inquiries into allegations of foreign exchange rate manipulation centred on the Swiss franc, but has left the heavy lifting to Europe, according to a source familiar with the probe. The Justice Department spoke with participants in the probe but is letting officials in Europe take the lead in any investigation, said the source, who could not be named to protect business relationships. "Everybody's been interviewed," the source said.
Two traders from an unnamed Swiss bank have been let go from their jobs in connection with the allegations, said the source. Investigations into the $5 trillion-a-day market have broadened, with authorities in Switzerland and Britain looking into whether traders at banks sought to manipulate benchmark foreign currency rates. Royal Bank of Scotland has already handed Britain's financial regulator instant messages sent by a former currency trader to counterparts at other banks, Reuters reported earlier this week.
The Justice Department declined comment on any US inquiry. Regulators and investors are concerned about the integrity of financial benchmarks in the wake of a global investigation into the rigging of interest rates. So far four financial firms, including Switzerland's largest bank UBS, have been fined about $2.7 billion and seven men have been charged as a result of the probes.
The Swiss Financial Market Supervisory Authority, FINMA, said earlier this month that it was "conducting investigations into several Swiss financial institutions in connection with possible manipulation of foreign exchange markets." FINMA said it was working with regulators elsewhere, but did not identify them or the target banks. With probes underway into benchmarks for crude oil and the swaps market as well as Libor interest rates, global regulators recently published principles to improve the transparency and oversight of hundreds of financial benchmarks, covering everything from interest rates to gold.
Foreign exchange benchmark rates, WM/Reuters, are calculated using actual trades hourly through most of the trading day, with closing rates "fixed" at 4 pm in London. Many banks provide a service to their customers where they guarantee to trade at the WM/Reuters rates. It is useful for buy-side investors like large funds to value and benchmark their portfolios, because most main stock and bond index compilers use these rates for their calculations. The WM/Reuters service is a joint venture between the WM Company and Thomson Reuters.
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