Banks Face Scrutiny in First Rand-Rigging Probe Since 2002

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South African regulators are investigating alleged foreign-currency market rigging for the first time in 13 years in a probe that will examine practices at banks including JPMorgan Chase & Co. and Citigroup Inc.

The Competition Commission suspects 11 companies of using electronic messaging software to coordinate deals when quoting prices to customers, it said in a statement Tuesday.

The inquiry follows a global probe into manipulation of the $5.3 trillion-a-day currency market that began in the U.K. two years ago. That scrutiny has now been extended to South African banks, including Standard Bank Group Ltd., Barclays Africa Group Ltd. and Investec Ltd.

“The market is a massive one, so it’s going to be very difficult for one or two banks to manipulate the rate on their own,” Ion de Vleeschauwer, head dealer at Bidvest Bank Ltd., said by phone from Johannesburg. “You’d have to have collusion between several banks. The regulators obviously felt it was prudent to look at the South African market. I’m not aware there’s been any wrongdoing.”

The rand accounted for 1.1 percent of global foreign exchange market turnover in 2013, the 18th most-active currency, according to a Bank for International Settlements survey released in September of that year. The currency was 0.3 percent weaker at 11.9436 per dollar at 9:46 a.m. on Wednesday.

The central bank said Tuesday the allegations related to market misconduct in offshore locations. Standard Bank, Barclays and Investec all have operations in London and New York.

‘Spared Banks’

Other entities named by the commission include BNP Paribas SA, BNP Paribas South Africa, Citigroup Global Markets (Pty) Ltd., Standard New York Securities Inc., a unit of Standard Bank, and Standard Chartered Bank.

“From a litigation perspective, South African banks, when compared to the international banks, have been spared,” said Greg Saffy, a banking analyst and head of Johannesburg-based Cast Iron Capital. “I can only believe this will slowly change over time.”

In the latest development in international investigations, UBS Group AG said Wednesday a unit had received conditional immunity in a U.S. antitrust probe into currency rigging as a reward for cooperating with authorities. It will pay $342 million to the Federal Reserve and undertake remedial measures in connection with foreign exchange misconduct.

UBS is the first of five global banks expected to announce settlements Wednesday with U.S. authorities over allegations of manipulating foreign exchange rates, people with knowledge of the discussions have said.

Rand Commission

Citigroup, JPMorgan, Barclays Plc and Royal Bank of Scotland Group Plc will probably enter pleas related to antitrust violations, the people said.

Former South African President Thabo Mbeki ordered an investigation into irregular rand trades after the currency dived 37 percent against the dollar in 2001. While illicit trades weren’t proved, investigators found transactions arranged by Deutsche Bank AG led to an outflow of money from South Africa, depleting the country’s foreign reserves.

Deutsche Bank agreed in 2002 to boost South African reserves by 800 million rand ($67 million) as part of an accord that ended the eight-month probe.

“The banks will take flak,” said Garth Mackenzie, founder of Johannesburg-based TradersCorner.co.za, an independent trader. “I can’t imagine the authorities would launch into this without a high chance of finding something.”

‘Clear Message’

Standard Chartered, Investec, Barclays Africa and Citigroup said they will cooperate with the commission, while Standard Bank and BNP said they couldn’t immediately comment. Kate Haywood, a spokeswoman for JPMorgan in London, declined to comment.

Traders allegedly fixed prices in relation to bids, offers and bid-offer spreads for spot, futures and forwards currency trades, the competition commission said in a statement.

“Conduct of this nature distorts the price of foreign exchange and artificially inflates the cost of trading in foreign currency paired with the South African rand,” Competition Commissioner Tembinkosi Bonakele said. “With this investigation we are sending a clear message that we will pursue cartels affecting South Africa wherever they take place.”

Once the commission has probed what it thinks may be prohibited practices, it can impose penalties. It also then makes recommendations to the country’s Competition Tribunal, which adjudicates these cases. Companies can appeal penalties before the Competition Appeal Court.

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