How to Stop the Rate-Riggers

The currency exchange rate scandal offers concrete clues
Martin Wheatley, chief executive of the U.K.’s Financial Conduct Authority Photograph by Matthew Lloyd/Bloomberg

Regulators in the U.K., the U.S., and Switzerland have moved with impressive speed to extract about $4.3 billion from some of the world’s largest banks for their role in rigging global currency markets. Now comes the hard part: identifying and punishing the people who actually did it and stopping it from happening again.

The settlements with six banks—UBS, Citigroup, JPMorgan Chase, Bank of America, Royal Bank of Scotland, and HSBC Holdings—paint a depressingly familiar picture. Foreign exchange traders profited at their clients’ expense by abusing information about orders, and they conspired to influence London-based benchmarks that affect decisions and transactions worldwide. The transgressions went on from 2008 through late 2013, persisting even as some of the same banks were reaching settlements over the rigging of the London interbank offered rate, or Libor.

Details presented by regulators illustrate just how commonplace the manipulation had become. Traders formed groups—with names such as “the 3 musketeers” and “the A-team”—that focused on specific currencies. Using private chat rooms, they shared information about their clients’ orders with the aim of pushing the WM/Reuters benchmark exchange rates, set at 4 p.m. London time, in the desired direction. “Hooray nice team work,” one trader wrote after an attempt to “whack” the British pound.

Two changes would raise the odds of deterrence. First, regulators should routinely screen markets for suspicious activity. Simple statistical analyses were all journalists needed to see that something was amiss in both currencies and interest rates.

Second, benchmark rigging should be a crime in itself. Its repercussions extend far beyond the traders involved, undermining confidence in markets that play a crucial role in the global economy.

The foreign exchange case illustrates that good market design alone doesn’t prevent rigging: The currency benchmarks already met guidelines that were created in the wake of the Libor revelations. Regulators also need to pay attention, and prosecutors need laws to enforce.


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