Forex Rigging Fines Could Run Up to $41 Billion

Forex Rigging Fines Could Run Up
to $41 Billion
By www.TheForexNittyGritty.com

There are ongoing investigations on
both sides of the Atlantic into Forex
rigging.
http://www.theforexnittygritty.com/forex/forex-rigging-fines-could-run-up-to-41-billion

According to an article in Bloomberg
the sum total of fines for these
misbehaviors could run as high as $41
Billion!

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Probes into allegations that traders
rigged foreign-exchange benchmarks
could cost banks as much as $41
billion to settle, Citigroup Inc. (C)
analysts said.

Deutsche Bank AG (DBK) is seen as
probably the “most impacted” with a
fine of as much as 5.1 billion euros
($6.5 billion)

Citigroup analysts led by Kinner
Lakhani said yesterday, estimating the
Frankfurt-based bank’s settlements
could reach 10 percent of its tangible
book value, or its assets’ worth.

Using similar calculations, Barclays
Plc (BARC) could face as much as 3
billion pounds ($4.8 billion) in fines
and UBS AG (UBSN) penalties of 4.3
billion Swiss francs ($4.6 billion), they
wrote in a note first sent to clients on
Oct. 3.

Basically dealers stepped in to make
profitable trades ahead of their clients
and conspired in online chat rooms to
rig currency benchmarks.

As investigations have progressed
traders and their supervisors have
been fired or put on indefinite leaves
of absence.

As the news report shows, the sum
total of Forex rigging fines could be
very impressive.

Forex Benchmarks

An interesting article in Investopedia
discusses How the Forex Fix May Be
Rigged.

The closing currency “fix” refers to
benchmark foreign exchange rates
that are set in London at 4 p.m. daily.
Known as the WM/Reuters
benchmark rates

they are determined on the basis of
actual buy and sell transactions
conducted by forex traders in the
interbank market during a 60-second
window (30 seconds either side of 4
p.m.).

The benchmark rates for 21 major
currencies are based on the median
level of all trades that go through in
this one-minute period.

The importance of the WM/Reuters
benchmark rates lies in the fact that
they are used to value trillions of
dollars in investments held by pension
funds and money managers globally,
including more than $3.6 trillion of
index funds.

Collusion between forex traders to set
these rates at artificial levels means
that the profits they earn through their
actions ultimately comes directly out
of investors’ pockets.

In short, traders shared information
about trades immediately before the 4
pm window thus rigging the end of day
Forex fix.

Considering that the world Forex
market turns over more than $5
Trillion a day there was a lot of money
to be made in small increments by
rigging Forex benchmarks.

Negotiating a Solution Including
Fines

U.K. regulators are discussing the
Forex rigging issue and Forex rigging
fines with major banks. The Wall
Street Journal reports:

British regulators held meetings this
week with six major banks about
potentially settling a long-running
investigation into possible
manipulation of currencies markets,
according to people familiar with the
talks.

The U.K.’s Financial Conduct Authority
held preliminary settlement talks with
executives and lawyers from U.S. banks
Citigroup Inc. C -0.41% and J.P. Morgan
Chase & Co., the U.K.’s Barclays PLC,
Royal Bank of Scotland Group RBS.LN
+1.22% PLC and HSBC Holdings
HSBA.LN +0.94% PLC, and
Switzerland’s UBS AG UBSN.VX +1.23%
, these people said.

Authority officials, including Chief
Executive Martin Wheatley, told the
bank officials that the regulator’s goal
is to reach a group settlement with the
six banks in the next eight weeks one
person said, although that timetable
could be delayed.

The authority told the banks they
should each expect to pay the U.K.
regulator more than the £160 million
($261 million) that UBS paid in 2012
to settle the U.K.’s probe into interest-rate
rigging, the people said.

The end result, hopefully, of large
Forex rigging fines is that traders will
be hesitant to do this again.

Forex Rigging Fines Could Run Up to $41 Billion

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Forex Rigging Fines Could Run Up to $41 Billion