UBS AG (UBSN) and Royal Bank of Scotland Group Plc suspended more than three traders in Singapore as regulators investigating Libor-rigging turn their attention to the rates used to set prices on foreign exchange derivatives.
At least two foreign-exchange traders at UBS, Switzerland’s largest bank, have been put on leave as part of an internal probe into the manipulation of non-deliverable forwards, a derivative traders use to speculate on the movement of currencies that are subject to domestic foreign exchange restrictions, according to a person with direct knowledge of the operation. Edinburgh-based RBS also put Ken Choy, a director in its emerging markets foreign exchange trading unit, on leave, a person briefed on the matter said on Oct. 26.
Regulators around the world are broadening the scope of their investigations beyond interbank offered rates such as the London interbank offered rate to encompass more benchmarks. The Monetary Authority of Singapore last month announced it was extending its probe into rate-rigging to include NDFs. About $1.02 trillion of the contracts are traded in a year, according to 2003 figures, the most recent available, compiled by the Emerging Markets (EEM) Traders Association.
Spokesmen for UBS and RBS declined to comment. Choy didn’t answer a call to his work phone in Singapore today.
Unlike foreign exchange forward contracts, where two parties agree to physically exchange currencies at a set rate at a specific date in the future, NDF traders settle the net position in U.S. dollars. Who pays and how much at the end of the contract is determined by reference to a fixing rate which in some jurisdictions is set, like Libor, by a survey of banks.
Contracts that reference the Malaysian ringgit and the Indonesian rupiah against the dollar are among NDFs that are traded in Singapore. The spot rates for both currencies are fixed by the Association of Banks in Singapore based on data submitted by banks. If traders can move the spot rates, they could boost their profit, said a person familiar with the process who asked not to be identified.
The Russian ruble spot rate is set by CME Group (CME) Inc., which operates the Chicago Mercantile Exchange. Each day, the company surveys at least 15 lenders at a randomly selected time between noon and 12.30 p.m. in Moscow and asks them for both a bid and offer price on a hypothetical $100,000 ruble-to-dollar transaction.
In other jurisdictions, the rate is set by central bankers. The Reserve Bank of India sets the spot rates for dollar-rupee and euro-rupee by polling “a select list of contributing banks” at a “randomly chosen five minute window” between 11.45 a.m. and 12.15 p.m. each day, according to its website. Before it changed the methodology in June 2011, all banks were called at noon each day.
Barclays Plc (BARC), Britain’s second-biggest lender by assets, was fined a record 290 million pounds ($467 million) in June when it became the first bank to settle with regulators over the rigging of interest rates. Derivatives traders at the bank systematically sought to influence where Libor was set each day to suit their trading positions and boost profits, according to the U.K.’s Financial Services Authority.