UBS Investment Bank Bans Multibank, Social Chat Rooms

UBS AG, Switzerland’s biggest bank, is banning the use of multibank and social chat rooms at its investment-banking division as global regulators probe the alleged manipulation of foreign exchange rates.

“All social related chat rooms are prohibited and must be closed immediately,” the investment bank’s executive committee wrote in an internal memo to staff today. Multibank and dealer chat rooms are also banned, and any request for an exception, which can be made “for business critical use only,” will have to be approved by the executive committee member and compliance officer responsible for the specific business, it said. A spokesman for Zurich-based UBS confirmed the memo’s contents.

Regulators have targeted traders’ electronic messages, using them as evidence of wrongdoing in their investigations into the manipulation of benchmark interest rates and foreign-exchange markets. JPMorgan Chase & Co., the biggest U.S. bank by assets, is weighing whether to ban traders from using electronic chat rooms to communicate with peers at other firms as the forums draw scrutiny from global regulators, a person with knowledge of the matter said this month.

The Swiss competition commission said in October it had been informed about possible collusion among banks on foreign exchange manipulation and had begun a probe. The Swiss banking regulator is also investigating several Swiss financial institutions.

‘Specific Risks’

“Recent events within our industry serve as a serious reminder to be mindful at all times to use appropriate language and behavioral standards in all of our communication, no matter the channel,” the UBS memo said. “In order to mitigate the specific risks associated with the use of chat rooms, the investment bank executive committee has decided to implement a number of measures. All staff are expected to comply with these requirements with immediate effect.”

Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned lender, and Zurich-based Credit Suisse Group AG, Switzerland’s second-largest bank, also are reviewing chat-room use, two people told Bloomberg this month. Barclays Plc and Citigroup Inc. are also among banks assessing the use of chat rooms, the Wall Street Journal reported.

UBS said use of chat rooms with a single client will need specific written approval from a managing director. Such chats, which could have several UBS users communicating with a single client, will have a managing director assigned to them, who would be permanently on the chat, act as a moderator and be responsible for content and behavior in the room, the memo said.

All internal one-to-one and multiparty chats should be conducted through UBS internal communication tools only, the bank said.

Extensive Monitoring

“UBS has extensive monitoring in place globally across all media to identify data leakage or misuse of electronic communication, and to monitor adherence to UBS policies and procedures, including these requirements,” the memo said. “You should be aware that failure to adhere to this guidance and related UBS policy can result in disciplinary action, including dismissal.”

The Swiss bank is setting up a project team to coordinate and assure the implementation of the new policies on chat rooms, the memo said.

An instant-messaging group involving traders at firms including Citigroup, RBS and London-based Barclays is being scrutinized by regulators investigating potential manipulation of the foreign-exchange market, four people with knowledge of the probe said last month. Over at least three years, the dealers exchanged messages via Bloomberg terminals outlining details of positions and client orders, and made trades before benchmarks were set, two of the people said.

‘The Cartel’

The roster of firms changed over time and included other banks such as UBS as the men switched employers, one of the people said. The message group was referred to as “The Cartel,” according to two traders who weren’t involved in the conversations.

Barclays, Citigroup, RBS and UBS account for more than 40 percent of trading in the $5.3 trillion-a-day foreign-exchange market, according to a survey by Euromoney Institutional Investor Plc. The U.K.’s Financial Conduct Authority last month opened a probe into currency trading, joining a global investigation that also involves regulators in the U.S., the European Union, as well as Switzerland.

Benchmark Rates

Bloomberg News reported in June that traders at some banks said they shared information about their positions through instant messages, executed their own trades before client orders and sought to manipulate the benchmark WM/Reuters rates.

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.

The 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.

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