Chatty traders face criminal probe for rigging forex market

​Britain’s Serious Fraud Office (SFO) is investigating the alleged use of chatrooms by forex traders in a conspiracy to rig exchange rates. An estimated $5.3 trillion in currencies changes hands daily.

The SFO, an independent government department that prosecutes fraud and corruption, announced the case on Monday.

"The Director of the Serious Fraud Office has today opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market," the regulator's statement said.

Every day at 4:00pm, the benchmark price is determined, or ‘fixed’, and is then used across businesses as the price set for foreign exchange trades, and is accepted as fair. Thus, the rate has a crucial role in the entire financial sector.

"The manipulation of the 'London 4pm Fix' doesn't just affect banks and traders, but the man in the street as well, as it is our pension and insurance funds that could be swindled out of millions of pounds by this,” Mark Taylor, the dean of Warwick Business School, told the Guardian. Taylor used to trade currencies at the Bank of England, before becoming a senior economist.

"If some of the big players in the market got together and put through some very large trades - billions of dollars each - then that could affect the market, so they can charge their clients a higher rate before covering it a few minutes later to make a healthy profit. You only have to move the market a small amount for a short period, and that could be worth millions of dollars for the banks,” Taylor said.

Mark Carney, the governor of the Bank of England, has warned that rigging of currency trades is potentially more serious than the notorious Libor scandal, which involved bankers fixing short-term interbank interest rates. In the end, banks were given more than $6 billion in fines.

The probe is on the heels of a larger world-wide investigation into benchmark manipulation in the largely unregulated foreign exchange market. Regulators in 15 countries have opened currency market rigging cases, the Guardian reports. Already dozens of individuals have been fired for manipulating currency trades.

Germany’s biggest bank, Deutsche Bank, has already dismissed currency traders over alleged wrongdoing.

The Swiss regulator has opened an investigation against Barclays, JPMorgan, Citigroup, the Royal Bank of Scotland, as well as Swiss banks UBS, Credit Suisse, Julius Baer and Zurcher Kantonalbank over rate-manipulation.
Suspicions of exchange rate manipulation first surfaced in 2011 when UK authorities started to closely monitor currency transactions after a tip off.