British regulators expanded their probe into the manipulation of global currency markets by asking banks to examine foreign-exchange traders’ personal transactions, said a person with knowledge of the matter.
The Financial Conduct Authority is focusing on so-called personal account dealing by traders who may have placed bets for their own benefit based on knowledge of customer currency orders, said the person, who asked not to be identified because the request hasn’t been made public.
Regulators in the U.K., Switzerland, the U.S. and Asia are probing the $5.3 trillion-a-day foreign-exchange market after Bloomberg News reported possible misconduct in June. Dealers said they had been front-running client orders and trying to rig the benchmark WM/Reuters rates by colluding with counterparts and pushing through trades before and during the 60-second windows when the figures are set, Bloomberg reported.
Britain’s markets regulator asked traders to come in for interviews in recent weeks, two people with knowledge of the inquiry said last week.
Officials at the London-based FCA declined to comment on the investigations. The probe of personal trading was reported earlier by the Financial Times.
At least seven banks including Britain’s Barclays Plc (BARC) and HSBC Holdings Plc (HSBA) have disclosed investigations by regulators. Citigroup Inc., JPMorgan Chase & Co. (JPM:US) and Barclays have suspended or put on leave some of their most senior currency traders. No one has been accused of wrongdoing.
The WM/Reuters rates determine what many pension funds and money managers pay for their foreign exchange and are used by index providers such as FTSE Group and MSCI Inc. (MSCI:US) to calculate daily valuations of indexes that span multiple currencies. Even small movements could affect the value of what Morningstar Inc. estimates is $3.6 trillion in funds including pension and savings accounts that track global indexes.
Because banks agree with clients to trade at the WM/Reuters rates, regardless of later moves, dealers are at risk of losses if the market moves against them.
The rates are published hourly for 160 currencies and half-hourly for the 21 most-traded. They are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour. Rates for less-widely traded currencies are based on quotes during a two-minute window.
The data are collected and distributed by World Markets Co., a unit of Boston-based State Street Corp. (STT:US), and Thomson Reuters Corp. Bloomberg LP, the parent company of Bloomberg News, competes with Thomson Reuters in providing news and information as well as currency-trading systems.
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