(Updates with Barclays probe in fourth paragraph.)
By Gavin Finch and Liam Vaughan
Oct. 30 (Bloomberg) -- Royal Bank of Scotland Group Plc is
reviewing how it trades in the minutes before key foreign
exchange benchmarks are set amid a regulatory probe into
possible manipulation of the $5.3 trillion-a-day market.
RBS’s foreign exchange sales team contacted some clients,
pledging the Edinburgh-based lender won’t share details of their
orders or use them to make proprietary bets, according to an
Oct. 23 e-mail, which was read to Bloomberg News.
“We are currently considering processes around the
benchmark service,” Sarah Small, a spokeswoman at RBS, said in
a statement. “The e-mail does not reflect final policy and we
are clarifying this with our clients.”
The lender handed over records of an instant message group
to U.K. regulators after concluding a former senior currency
trader’s communications with counterparts at firms including
Barclays Plc and Citigroup Inc. were inappropriate, two people
with knowledge of the matter said this month. Barclays said
today it has been contacted by authorities probing the currency
market and is reviewing its trading practices.
In June, Bloomberg News reported that dealers pooled
information about their positions through instant messages,
executed their own trades before client orders and sought to
manipulate the benchmark WM/Reuters rates by pushing through
trades around the 60-second windows when the benchmarks are set.
“No traders or proprietary system will take any position
on the back of your order,” the RBS sales team said in the e-
mail. “Our usual high standards of client confidentiality will
The WM/Reuters rates determine what many pension funds pay
for their foreign exchange and are used by index providers such
as FTSE Group to calculate indexes spanning multiple currencies.
Index tracker funds, which buy and sell currencies at the 4 p.m.
WM/Reuters rates, typically place their orders in the hour or so
before the close, giving dealers a picture of their complete
order book in advance of the so-called fix.
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.
RBS told clients it would start “pre-hedging” orders up
to 15 minutes before the benchmark is set to protect itself
against market movements.
“You should also be aware that this could potentially
result in the market moving against you,” the bank said in the
e-mail. “However, we will take steps to minimize the market
impact within the above context notably by executing the order
over a longer period of time.”
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., 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.
For Related News and Information:
Barclays, Citigroup FX Traders’ Messages Said to Be Scrutinized
Ex-RBS Trader in U.K. Currency Probe Said to Be JPMorgan’s Usher
RBS Said to Pass Currency Trader’s Messages to FCA Amid Probe
Currency Spikes at 4 P.M. in London Provide Rate-Rigging Clues
Traders Said to Rig Currency Rates to Profit From Clients
--With assistance from Ambereen Choudhury in London. Editors:
Simone Meier, Jon Menon
To contact the reporters on this story:
Gavin Finch in London at +44-20-3525-3627 or
Liam Vaughan in London at +44-20-3525-4754 or
To contact the editor responsible for this story:
Edward Evans at +44-20-3525-3190 or