Regulators kept Busy by FX rumors
It was Harold Wilson that said “a week is a long time in politics” however it should come as no surprise to our readers that a week is an even longer time in the foreign exchange markets!
Last week saw the revelation that pending a probe into the dealings of some of its senior traders UBS group had announced that two of its senior trading team had left the bank.Indeed the comments by the Swiss finance minister
Eveline Widmer-Schlumpf on Wednesday which basically asserted that she knew market manipulation had taken place. Instead, the finance minister had meant to say she was aware that possible manipulation of the foreign exchange market is being investigated, spokesman Roland Meier clarified. Switzerland’s competition commission WEKO and its financial markets regulator FINMA said last week that they had opened investigations into potential manipulation of foreign exchange markets by banks. They declined to name the banks under investigation. Regulators and investors have grown increasingly concerned about the integrity of financial benchmarks in the wake of the Libor interest rate rigging scandal.
Scrutiny of the $5 trillion-a-day currency market has broadened in recent days, with authorities in Switzerland and Britain looking into whether traders at banks sought to manipulate benchmark foreign exchange rates. The market is the biggest in the financial system and one of the least regulated, with most trading taking place away from exchanges.
Companies need foreign exchange benchmark rates to value currency holdings at a uniform rate. The market is the biggest in the financial system and one of the least regulated, with most trading taking place away from exchanges. Companies need foreign exchange benchmark rates to value currency holdings at a uniform rate. Britain’s Financial Conduct Authority (FCA) said in June it was examining allegations banks had manipulated foreign exchange benchmarks by trading ahead of their own customers’ orders, a practice known in the markets as “front running”. A report by Bloomberg in June said traders at some of the world’s biggest banks had used their advance knowledge of customer orders to push through trades before and during the 60-second window when the WM/Reuters benchmark rates are set.
The WM/Reuters benchmark rates cover 160 currencies. Data from Thomson Reuters systems are a primary source of the exchange rates used to calculate the benchmarks. World Markets, a unit of Boston-based State Street Corp., applies its methodology and calculates the benchmark. The Bloomberg report said traders had colluded with counterparts at other banks to boost their chances of moving the rates. The foreign exchange benchmark rates, WM/Reuters, are calculated using actual trades hourly through most of the trading day, with closing rates “fixed” at 4 p.m. in London.As we said last week watch this space.