Hong Kong is looking into suspected price manipulation in the $5.3 trillion-a-day global foreign exchange market, becoming the first authority in Asia to join Europe and the United States in the investigation. Several media reports have suggested that traders manipulated the fixings, or snapshots of where currencies are trading at a particular time in the market, which are used to price trillions of dollars worth of investments.
Regulators and investors are looking carefully at the integrity of financial benchmarks after a global investigation into interest rate rigging led to fines for four financial firms including Switzerland's largest bank UBS. Switzerland, Britain and the United States are already making inquiries about whether the currency traders used advance knowledge of client orders and each other's trading positions to rig the foreign exchange fixings in their favour.
The Hong Kong Monetary Authority said on Wednesday that it was talking to foreign regulators and banks about the currency market allegations. "The Hong Kong Monetary Authority is aware of the allegations. We have been in communications with the relevant overseas regulators and (are) following up with individual banks," the de facto central bank said in a statement.
Switzerland's financial markets regulator FINMA said earlier this month that it was investigating several Swiss banks. FINMA did not name the banks under scrutiny but said multiple banks around the world were potentially implicated. The chairman of Credit Suisse, Switzerland's second-largest bank, told a local newspaper this month that it had not found any evidence of malpractice in the FX market following inquiries from regulators.
In echoes of the global probe into interest rate rigging, authorities are examining electronic messages between currency traders to see whether they colluded with counterparts. Investment banks, including Royal Bank of Scotland and Deutsche Bank, have handed over instant messages and emails to Britain's Financial Conduct Authority (FCA) over the summer as part of its probe, banking sources said. Last week, a source familiar with the matter said the United States was also involved in the probe. Authorities in the United States and Britain, RBS and Deutsche Bank have all declined to comment about the probes.
CHATROOMS Stung by revelations of lax oversight and controls in the Libor interest rate rigging scandal, banks are pro-actively handing over information from their FX desks to watchdogs. "It's a two-way flow of information," said a source at a US bank. A source familiar with the British inquiry said the tone of messages between foreign exchange traders was similar to exchanges between Libor derivatives traders, whose arrogance as they manipulated benchmark interest rates stunned regulators, politicians and the public in 2012.
Media reports this week suggest the investigations centre on a group of senior dealers at big banks who communicated via electronic chatrooms. The group was known by names such as "The Cartel" and "The Bandits' Club". The most popular benchmark is the WM/Reuters "fix", which is set at 4 pm London time, using actual trades and order rates from Reuters and rivals such as EBS during a 1 minute "fix" period. WM, a unit of State Street, calculates the benchmark using the median of the trades and the orders. Bloomberg News reported in June that traders at some banks may have pooled information about their positions through instant messages and sought to manipulate the WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set.
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