US fine bolsters SA’s rand-fixing case
In January 2008, a few months after foreign exchange traders organised a currency-rigging cartel, its members discussed plans to manipulate the South African rand in an operation called “ZAR domination”.
The discussion took place in a covert chatroom — the Old Gits — between a New York-based Standard Chartered trader and two other traders operating at other global banks.
“I think we need an old gits meeting to discuss good ole zar manipulation. We should be able to bully people now far more than any other [currency],” one trader wrote.
The Standard Chartered trader agreed, responding that there should be a “meeting of the family one night”. To which the first trader replied: “gits = zar domination”.
In April that year, the group concocted a scheme to manipulate the rand by quoting wider-than-usual spreads after hours for South Africa, when the banks in the country were closed and market activity in the rand had slowed.
(A spread is a difference between the buying and selling price in foreign currency pairs. The narrower the spread, the more competitive the price. A trader offering a wider spread might lose customers to other banks offering tighter spreads.)
This is just one of many discussions that took place between the foreign currency traders of several global banks who were actively involved in rigging foreign currencies between 2007 and 2013. The traders used chatrooms, emails and phone calls, and also met in person to achieve these ends.
On January 29 this year, British-headquartered banking group Standard Chartered pleaded guilty to charges of foreign currency manipulation, including of the rand, following an investigation by the New York state department into financial services.
In the Old Gits chatroom alone, which one participant described as a “den of thieves”, at least three Standard Chartered traders had been long-time participants.
They specialised in trading emerging market currencies, which often have less liquidity than other currencies, which makes them more vulnerable to co-ordinated trading.
The New York authorities said in a consent order that the people involved in currency rigging were not limited to a single group of traders in one office and on one product; it involved a wide network of Standard Chartered traders who were improperly fiddling with different currencies and products.
The authorities said this was “unsound and improper conduct”, which resulted in improving the bank’s profits at the expense of its customers, competitors and the market as a whole.
Standard Chartered will have to pay a fine of $40-million, about R542-million, take disciplinary action against the employees who were implicated and strengthen its internal controls and audits to ensure future compliance.
The foreign exchange market has little regulation but there are set rules to ensure that the market is transparent, competitive and fair. On each trading day, organisations are required to publish snapshots of the market prices at specific times, which assist in creating benchmark prices.
In South Africa, Standard Chartered is in a protracted battle with the Competition Commission, which has been investigating a case of price-fixing and market allocation in the trading of foreign currency pairs involving the rand.
Similar to the New York case, the commission has charged the banks of “manipulating the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at certain times”.
According to the commission, the collusive schemes were concocted mainly on trading platforms such as the Reuters currency trading platform and Bloomberg’s instant messaging.
In a statement released this week, the commission said it had noted the settlement order signed by Standard Chartered and that it would consider how it could affect its currency rigging litigation against the banks.
The respondents to the commission’s case include American Merrill Lynch, BNP Paribas, JP Morgan, Investec, HSBC, Standard Bank, Commerzbank, the Australia and New Zealand Banking Group, Nomura, Macquarie Group, Absa and Barclays.
The commission has been investigating the case since April 2015 and so far only Citibank has pleaded guilty and accepted to pay a settlement of R69-million.
Although the commission referred the case against the banks to the Competition Tribunal in February 2017, it has been delayed by counter-litigation by the banks over pretrial issues.
The commission said the respondents, which include Standard Chartered, have questioned whether it has the jurisdiction to pursue the international banks and raised questions about the disclosure of the commission’s evidence.
“Despite the commission filing its papers to the tribunal on 15 February 2017 against 17 banks, none of the banks has to date filed their answer to the merits of the case, except HSBC, which has filed papers disputing its participation in the cartel,” the commission said.
Tebogo Tshwane is an Adamela Trust journalist at the M&G