Updated “Forex Manipulation Case” Involves 16 Giant Investment Banks FX Market

The 16 investment banks are: Bank of America (24.86,-1.12,-4.31%), Barclays, BNP Paribas, Citigroup, Credit Suisse (9.31, 0.03, 0.32%), Deutsche Bank, Goldman Sachs (201.22,-8.44,-4.03%), HSBC Holdings, JPMorgan Chase (99.86,-1.51, -1.49%), Morgan Stanley (44.4,-2.46,-5.25%), Mitsubishi UFJ Bank (MUFG Bank), Royal Bank of Canada (66.25,-0.72,-1.08%), RBS (2.94,-0.10,-3.29%) > Royal Bank of Scotland, Societe Generale, Standard Chartered Bank and UBS (10.75,-0.09, -0.83%) Group (UBS). They are the world's largest financial institutions in Europe and the United States.

Judge Scofield dismissed some of the charges against Barclays, JPMorgan Chase and Royal Bank of Canada on the grounds that they were not filed in time, and she disqualified SG Americas Securities LLC. Banks seeking to dismiss the lawsuit also include Bank of America, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, NatWest Markets Securities Inc., Royal Bank of Scotland, Societe Generale, Standard Chartered Bank and UBS.

Scofield said this ruling was made before both parties had ample opportunity to collect evidence and did not reflect the judge's decision on the merits of the case.

Event recap: a $5.1 trillion manipulation case!

In November 2018, the 16 investment banks were accused of manipulating the forex market between 2003 and 2013. It is reported that the 16 banks were accused of conspiring to manipulate the benchmark forex rate and the exchange rate offered to customers during the decade. The plaintiffs were 1,300 investment companies and local governments, including large institutional investors such as BlackRock (536.84, 0.44, 0.08%) and (PIMCO), a Pacific investment management company owned by Allianz of Germany. They accused the banks of manipulating the exchange rate in the forex market, which has a daily trading volume of about $5.1 trillion, and claimed that in forex trading, these institutions may force them to pay higher prices when they buy and accept artificially fixed low prices when they sell.

Previously, the investors had already filed a class action lawsuit, which resulted in a settlement of $2.31 billion with 15 of the banks. But the investors who were dissatisfied with the result decided to to sue on their own to recover the losses.

Forex manipulation cases are frequently exposed

In recent years, there have been frequent interest rate manipulation scandals involved in big banks.

At present, these forex manipulation cases exposed mainly involves that the traders in some well-established international investment banks cooperate with other peers to manipulate forex price movements by the following ways:

Sharing individual customersorder information

This allows traders to make judgments before the fixing prices or market movements. As mentioned in the latest case above, they share information through a variety of channels, including phone calls, text messages, chat rooms and even interviews.

Trading in advance, which means to buy before the fixing price, with the help of customers order information

For example, if a customer wants to buy a currency pair of $100 million at the fixing price, the trader will buy the dollar an hour before the fixing price to hedge ahead of time, raising the exchange rate, so that the customer will suffer losses because of a higher fixing price.

Placing a large number of small orders before the fixing price to affect the price

As WM/Media fixing price is determined by the median of transactions in a short period of time before the order, a large number of orders may affect the final fixing price.

Fake transactions

Traders conduct a large number of false transactions with each other during the fixing period to rig the fixing price.

Short squeeze or long squeeze

Buying or shorting a large number of currencies leads the exchange rate to break through a certain level, triggering lots of automatic stop-loss orders.

Transactionswith private accounts

Using private account to trade before customer places an order

In the famous “forex manipulation case involved in six major international banks” in 2014, regulators in the UK, the United States and Switzerland announced fines totaled $4.25 billion on six large international banks including JPMorgan Chase, Citigroup, UBS, Royal Bank of Scotland, HSBC and Bank of America Merrill Lynch. Twelve major investment banks were fined more than 166.6 billion pounds ($216.8 billion) including settlement fees for manipulation or misconduct in 2009-2013, according to IMF.

Although supervision and punishment have been strengthened after various market manipulation cases have been frequently exposed, investment banks didn‘t stop rigging the trading market. And the market is also worried about the opacity of investment banks’ trading activity information.

Industry analysts believe that the fines are just the tip of the iceberg of the huge profits made by these traders from market manipulation, which may continue without further tightening regulation.

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