U.S. Said to Open Criminal Probe of FX Market Rigging

Photographer: Dhiraj Singh/Bloomberg

A man counts Indian rupee banknotes near the Bombay Stock Exchange (BSE) building in Mumbai. Close

A man counts Indian rupee banknotes near the Bombay Stock Exchange (BSE) building in Mumbai.

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Photographer: Dhiraj Singh/Bloomberg

A man counts Indian rupee banknotes near the Bombay Stock Exchange (BSE) building in Mumbai.

The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said.

The Federal Bureau of Investigation, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential.

The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it was reviewing potential manipulation of exchange rates. That month, allegations that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates were reported by Bloomberg News. Regulators are probing the alleged abuse of financial benchmarks used in markets from oil to interest rate swaps by the firms that play a central role in setting them.

Swiss regulators said last week they were “coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.” The probes include alleged manipulation of ISDAfix, a benchmark in the $379 trillion market for interest-rate swaps.

The International Organization of Securities Commissions, the Madrid-based group representing regulators from more than 100 countries, set tougher guidelines for publishing benchmarks in a July 17 report, including making prices based on “observable” deals where possible to increase transparency.

Commodities Markets

Regulators, including European Union Competition Commissioner Joaquin Almunia, may examine commodities markets, having already increased investigations of manipulation of benchmarks for oil, interest rates, derivatives and foreign exchange.

EU investigators searched the offices of Platts, the unit of New York-based McGraw Hill Financial Inc. that assesses the price of Dated Brent, the benchmark for more than half of the world’s crude. Kathleen Tanzy, a New York-based spokeswoman for Platts, said in an Oct. 4 e-mailed statement that the company’s “aim is to bring transparency to price discovery by publishing as much detailed and meaningful information as possible.”

In a Bloomberg News survey conducted over eight weeks, commodities traders who buy and sell as much as $5.67 trillion of raw materials a year say the benchmark prices for everything from oil to iron ore to gasoline are wrong as often as 27 percent of the time.

The person familiar with the U.S. currency market probe didn’t say which banks may be under scrutiny. Peter Carr, a spokesman for the U.S. Justice Department, declined to comment on the investigation.

Antitrust Regulators

Probes of Libor manipulation led to fines totaling about $2.6 billion against four firms, including UBS AG (UBSN), Switzerland’s largest bank, for rigging the benchmark for more than $300 trillion of securities worldwide.

Earlier this week, European Union antitrust regulators said they were examining the possible manipulation of currency rates by the financial industry, while Switzerland’s Financial Market Supervisory Authority, or Finma, and the nation’s competition commission said they were probing similar potential wrongdoing.

The U.S. Commodity Futures Trading Commission has also been reviewing possible currency market rigging, said a separate person with knowledge of the matter.

The U.K.’s FCA sent requests for information to four banks, including Frankfurt-based Deutsche Bank AG (DBK) and New York-based Citigroup Inc. (C), a person with knowledge of the matter who asked not to be identified said in June.

Royal Bank of Scotland Group Plc has handed over records of instant messages to the FCA after concluding a former currency trader’s communications with counterparts at other firms may have been inappropriate, according to two people with knowledge of the matter.

Reviewing E-Mails

RBS, Deutsche Bank and Citigroup are among firms reviewing e-mails, instant messages and phone records of their foreign-exchange employees for evidence of potential manipulation, according to three people with knowledge of those probes. Spokesmen at all the firms have previously declined to comment.

Seb Howell, a spokesman for Deutsche Bank, Jeffrey French, a spokesman for Citigroup, and Jason Knauf, a spokesman for RBS, declined to comment on the U.S. investigation.

RBS, in its deferred prosecution agreement over Libor manipulation with the U.S. in February, agreed to cooperate in “any and all matters” related to “manipulation, attempted manipulation, or interbank coordination of benchmark rate submissions.” Prosecutors filed a nonpublic document in that case listing the rates that are the focus of its ongoing investigation, according to court records.

German Regulator

Germany’s financial regulator said it sees no reason for a special audit of any of the country’s banks for potential currency manipulation, Ben Fischer, a spokesman for Bafin, said earlier this week.

FTSE Group, the compiler of Britain’s FTSE 100, is reviewing the currency benchmarks it uses to value its global stock indexes, said three people with knowledge of the plan.

The index provider, a unit of London Stock Exchange Group Plc (LSE), is setting up a working group to examine its use of the WM/Reuters foreign exchange rates, said the people, who asked not to be identified because they weren’t allowed to talk publicly. The review, at an early stage, will probably focus on proposing changes to the way WM/Reuters calculates the figure rather than on whether to stop using it, one of the people said.

Currencies

WM/Reuters 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), 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.

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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