Foreign exchange dealers from the world’s biggest banks told the Federal Reserve Bank of New York the global probe into manipulation of currency rates could prompt an overhaul of the way they handle customer orders, minutes released by the central bank show.
Currency chiefs from banks including JPMorgan Chase & Co. (JPM), Barclays Plc (BARC) and Citigroup Inc. (C) met with six officials from the New York Fed at a Nov. 13 meeting of the Foreign Exchange Committee -- an industry group sponsored by the New York Fed -- according to minutes released by the group.
“Private sector members suggested that any investigations and/or supervisory activity related to this subject could eventually result in recommended changes to best practice guidance,” according to the minutes from the meeting, which was hosted by JPMorgan.
Regulators from Switzerland to Washington are examining evidence reported by Bloomberg News in June that currency dealers had been front-running client orders and attempting to rig foreign-exchange rates by colluding with counterparts and pushing through trades before and during the 60-second windows when key benchmarks such as the WM/Reuters rates are set, known as the fix. They would share details with brokers and counterparts at banks through instant messages to align their strategies, two of the people said at the time.
ACI, a Paris-based industry group for foreign-exchange and money market traders, is considering amending its code of conduct to include specific guidelines for trading around fixes.
“This is at the top of the agenda for 2014,” said David Woolcock, chairman of the committee for professionalism at the group, which has 13,000 members in more than 60 countries.
Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange -- the buying and selling for immediate delivery as opposed to some future date -- isn’t considered an investment product and isn’t subject to specific rules. Instead, banks sign up to voluntary codes of conduct, which outline best practices and standards of professionalism.
Investigations into alleged manipulation have already had repercussions across the industry. Royal Bank of Scotland Group Plc’s foreign-exchange sales team contacted clients, pledging its traders won’t share details of their orders or use them to make proprietary bets, according to an Oct. 23 e-mail read to Bloomberg News.
The officials from the New York Fed didn’t discuss banks or individuals and wouldn’t disclose details of investigations or “the supervisory aspects of the behavior alleged,” according to the minutes.
Money managers have also started changing how they book trades with their banks to minimize traders’ ability to move the market against them. Investors are breaking their orders into smaller units and using more banks to reduce the opportunity for front-running, one of Europe’s largest money managers said.
Despite the investigations, client demand for trading at the fix remains steady, according to the committee minutes.