Germany Wants Currency-Trade Overhaul on Global Agenda

Chancellor Angela Merkel’s government backed moving currency and precious-metals trading to exchanges, saying Germany will take up overhauling global financial markets with its partners.

As the rigging of the London interbank offered rate spurs scrutiny of trades, German Deputy Finance Minister Michael Meister said stronger financial regulation would counter the manipulation of other benchmarks.

“We generally welcome shifting trades of foreign currency and precious metals to regulated exchanges because it increases the integrity of price-setting,” Meister said yesterday in an e-mailed reply to questions. “The proposal has to be discussed at the international and in particular at the European level.”

Meister was backing an idea floated in January by Elke Koenig, head of the Germany’s Bafin regulator. Moving currency and commodities trading “as much as possible” from spot markets to regulated exchanges would help expose “trading patterns that manipulate prices,” she said in an interview.

Koenig said her proposal, the most radical call for change since Libor rate-fixing scandal began, is “an admittedly very far-reaching idea” that could be tackled in stages. Rigging in the foreign-exchange and precious-metals markets may be worse than the Libor manipulation, she said in a speech on Jan. 16.

Deutsche Bank AG, the world’s biggest foreign-exchange dealer, dismissed three New York-based traders following an internal investigation into alleged manipulations, a person familiar with the matter said today.

Merkel’s Theme

Merkel turned curbing the power of financial markets into her rallying cry during Europe’s debt crisis and sounded the theme again after starting a third four-year term in December. Global regulators have turned attention to possible rigging of benchmarks in the $5.3 trillion-a-day foreign-exchange market after Libor probes resulted in about $6 billion in fines.

Ten banks turned over evidence to the U.K. Financial Conduct Authority in an investigation into manipulation of foreign-exchange benchmarks, Martin Wheatley, the regulator’s chief executive officer, said in London yesterday. The allegations are “as bad as Libor,” said Wheatley, who didn’t name the banks.

Joaquin Almunia, the European Union’s antitrust chief, said on Jan. 24 the level of manipulation of market benchmarks is “impressive” and may include foreign exchange and some raw materials.

Average daily foreign-exchange trading volume grew to $5.3 trillion last year from $4 trillion in 2010, a 33 percent increase, according to the Bank for International Settlements in Basel, Switzerland. Growth was driven “by financial institutions other than reporting dealers,” the BIS said.

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