Lloyds Trader Said to Tip Off BP to $500 Million FX DealGavin Finch, Ambereen Choudhury and Liam Vaughan
A senior currency dealer at Lloyds Banking Group Plc shared details of a pending order by his firm with a trader at another company to the potential detriment of the bank, according to four people with knowledge of the matter.
The Lloyds’s dealer, Martin Chantree, alerted the other trader on Jan. 31, 2013, that his desk had received instructions from the bank’s treasury department to swap more than 300 million pounds ($499 million) for dollars and that they would continue selling regardless of price movements, said two of the people, who asked not to be identified amid a probe into alleged rigging of the currency market. The recipient of the tip worked for oil company BP Plc, the other two people said.
In the seven minutes between the communication at 10:53 a.m. and the time Lloyds began executing the order, the pound fell 16 basis points against the dollar, or 0.16 percentage point, according to data compiled by Bloomberg. As the U.K. currency tumbled, costing Lloyds an estimated $750,000, Chantree told colleagues that maybe he shouldn’t have shared the information, two of the people said.
“Leaking price-sensitive information may well amount to the offenses of market abuse or insider dealing,” said Charles Kuhn, a lawyer at Hickman & Rose who previously worked at Britain’s Financial Conduct Authority. “Increasingly regulators are prepared to take robust action against the individuals and institutions who they believe to be involved in such conduct. The consequences for someone passing on their entire position to an unauthorized third party are likely to be severe.”
The possible leak of trading information to a company that isn’t a bank opens another front in an already sprawling investigation of practices in the $5.3 trillion-a-day currency market. At least a dozen regulators on three continents are examining allegations first reported by Bloomberg News in June that traders colluded with counterparts at other banks to manipulate benchmark rates and executed orders for their own accounts before placing client orders. More than 20 traders have been suspended or fired as a result of the probes.
Bank of England Governor Mark Carney told lawmakers at a hearing in London before the Parliament’s Treasury Committee that currency-rate manipulation allegations are “extremely serious.” The central bank is cooperating with the FCA’s investigation, he said.
Lloyds suspended Chantree on Feb. 3 after inquiries by Bloomberg News about his alleged communications in advance of the trade. The London-based bank, which is 33 percent owned by the U.K. government, approached the FCA after discovering messages, including the 10:53 a.m. voice communication in which Chantree detailed the size and timing of the order, two of the people said.
“We take individual allegations of this nature very seriously, and we immediately launched an investigation into the specific allegations raised,” Lloyds said in an e-mailed statement. “The investigation is ongoing, and as it is at a very early stage it would be inappropriate to speculate on its outcome at this time.”
Chantree, who has worked at the bank for nine years, hasn’t been accused of any wrongdoing by authorities. He didn’t respond to messages left at a phone number listed in his name, sent via LinkedIn and delivered by courier to his home. A lawyer for Chantree declined to comment.
BP, Europe’s second-largest oil company, buys and sells currencies to hedge against movements in foreign-exchange rates, repatriate earnings and make proprietary bets. It denied that its traders acted improperly.
“BP did not sell sterling until after it was widely known in the market that Lloyds was an active seller,” the London-based company said in a statement. “We strongly refute any suggestion that any BP FX traders engaged in inappropriate trading activity.”
By allegedly tipping off another firm, Chantree ran the risk his counterpart would sell sterling before Lloyds executed its order, driving down the price. It isn’t known whether anyone else outside the bank had knowledge of the impending trade.
Between 10:53 a.m. and 11 a.m. on the day of the trade, about when Lloyds began selling, the pound-dollar exchange rate fell to 1.5790 from 1.5815, data compiled by Bloomberg show.
If Lloyds had sold 300 million pounds at the 10:53 a.m. price, it would have received $474.45 million. If it swapped the entire amount at the 11 a.m. price, it would have received $473.7 million, about $750,000 less. By the time the bank completed the transaction at about 11:30 a.m., according to two of the people, the price fell even lower, to 1.5787.
In the clubby, close-knit world of foreign exchange, traders interviewed by Bloomberg News on condition they not be named said they would share information with each other and favored clients to secure future business or get details about transactions being done elsewhere. Findings by Andre Spicer, a professor at the Cass Business School in London who’s researching the behavior of traders, support that.
“There’s a very tight network between foreign-exchange traders,” Spicer said. “If they want to make a career in the market, they need to keep sweet with each other rather than with their employer.”
Deals initiated by a bank’s own treasury department, such as the Lloyds January 2013 transaction, were seen as an opportunity to make as much money as possible, often at the expense of their firms, some of the traders said.
Lloyds did internal deals of that size only six or seven times a year, two of the people said. When an order came in, some traders on the second floor of the bank’s Gresham Street headquarters in London’s financial district would place their own bets before executing the trade in a way that moved the market as much as possible, one of the people said. They were able to do this because notice was typically sent to more than one trader on the desk and Lloyds’s treasury unit didn’t scrutinize whether it got the best price, the person said. There’s no indication Chantree placed such bets that morning.
Traders at Lloyds knew Chantree had contacted BP with details of the pending transaction because he said so at the time, two of the people said. Still, no one reported it to senior management or compliance staff, according to two other people with knowledge of the matter.
Lloyds plays a relatively small role in the currency market. It ranked 39th last year in its share of the spot and currency-forwards business compared with 60th in 2009, according to a May survey by Euromoney magazine.
BP has about 200 traders at its office in London’s Canary Wharf. The trading unit made $2 billion for the oil company in 2004, the last time the firm broke out trading profits.