The practice of sharing details about such orders is at the center
of a global rigging probe.
Transcripts of a foreign exchange chatroom, now in the hands of
Britain's Financial Conduct Authority, reveal for the first time
that an un-named senior dealer who attended the meeting told fellow
traders the next day that Bank officials had agreed there were
advantages to sharing client order information to minimize market
volatility around daily reference rates known as "fixings", two
sources familiar with their content told Reuters.
By sharing information during these fixings, traders are able to
match trades and minimize price swings, thereby lessening the risk
they take on big transactions.
These and other transcripts are now part of the formal investigation
by the FCA into allegations of collusion and manipulation of the
$5.3 trillion a day global foreign exchange market. Reuters was
unable to view the precise words of the senior trader because the
transcripts are confidential.
The chatroom transcript, dated April 24, 2012, could now become a
central piece of evidence in the probe as it is one of the few
pieces of written material from the time of the April 23 meeting in
London to have so far come to light.
At stake is whether the Bank of England, in its role as the official
monitor of London currency markets that command some 40 percent of
the global market, was aware of and condoned activity among
market-making banks that is now alleged to have amounted to
collusion and manipulation.
"It certainly points to a very gloomy picture. This reinforces why
we need to have a thorough, proper outside investigation into what
was going on," said Mark Garnier, a Conservative lawmaker and member
of parliament's Treasury Select Committee.
A Bank of England spokeswoman said the Bank's oversight committee is
conducting an investigation into whether any BoE official was
involved in the sharing of confidential client information or aware
of the sharing of such information between FX market participants,
and therefore it would not be appropriate to comment. The FCA also
declined to comment.
The Bank of England originally said its minutes of the meeting,
which were released in January following a freedom of information
inquiry by Reuters, were not prepared until more than a year after
the meeting in June 2013.
Additional searches at the Bank, however, uncovered an email showing
that the minutes were in fact drafted and circulated to members in
The Bank suspended an unnamed employee on March 5, pending
investigation by the bank into compliance with its processes.
The Bank said in a previous statement that the record of the April
meeting "does not show any discussion of actual or alleged
manipulation of FX benchmarks".
However, sources familiar with the proceedings of the meeting have
told Reuters that the regular gathering of chief dealers and Bank
officials, which on this occasion was held at the central London
offices of French bank BNP Paribas, openly addressed the routine
sharing of client information between senior dealers at the top
foreign exchange banks.
And one of the senior dealers present at the meeting has since
lodged copies of his own notes with the FCA, they added.
Testimony from BoE governor Mark Carney and the central bank's
markets chief Paul Fisher last week said discussions between the
Bank and top dealers about potential manipulation around key market
fixings in previous years had only delved into the activity of
non-bank players such as hedge funds.
Fisher, who was head of foreign exchange at the central bank until
2009, said last week that he was unaware of any allegations of
collusion between traders "until we heard this news that started to
come through last year (2013)."
The only reference to any discussion is in the minutes of the
meeting of the chief dealers subgroup of the BoE-sponsored Foreign
Exchange Joint Standing Committee, which were released in January
which simply say: "There was a brief discussion on extra levels of
compliance that many bank trading desks were subject to when
managing client risks around the main set piece fixings".
[to top of second column]
Minutes were not taken of that specific part of the discussion at
the request of chief Bank of England currency trader Martin Mallett,
who chaired the committee, according to one source familiar with
details of the meeting.
Mallett has not responded to Reuters
attempts to contact him and the Bank of England declined comment.
ON THE HUNT
Allegations senior traders in the FX market had shared client order
information with each other first became public in June last year.
Britain's market regulator began looking into these allegations at
least as far back as early 2013 and formally announced it was
investigating in October, the same month the U.S. Justice Department
opened its own probe.
The foreign exchange market's main industry body, the ACI, says that
banks must be allowed to share details of their overall position
with others, but differentiate between that and either cartel-like
collusion to move the market or the breaking of confidentiality
agreements with particular clients by sharing details of their
orders, both of which go against the ACI code of conduct.
More than 20 traders at some of the world's biggest banks have so
far been placed on leave, suspended or fired. Carney and other
senior financial figures have said the FX investigation could be
bigger than the Libor rate-rigging scandal, which has triggered
criminal prosecutions and $6 billion in settlements.
Carney said he was first alerted to allegations BoE staff may have
somehow been involved or aware of market rigging on October 16,
which prompted an internal investigation within 48 hours.
"We have no information that suggests that anyone at the Bank of
England condoned manipulation, or facilitated, participated in
market manipulation," Carney said.
Industry, market and legal sources contacted by Reuters all said
they could not recall a major central bank suspending an individual
as part of an investigation into allegations of market manipulation.
"It's highly unusual for a central bank to find itself in this
position, and they have some difficult questions to answer," said
Vivienne Tanchel, a barrister and former City of London trader now
specializing in criminal, regulatory and financial litigation, at 2
Hare Court in London.
At the same Treasury Select Committee hearing, Fisher said that
discussions between BoE officials and traders about possible
manipulation in 2006 and 2008 centered on third-party forces such as
hedge funds moving the market with big trades.
He made a clear distinction between that and collusion, which is
what is under investigation now and which he said he knew nothing
about until last year.
"It isn't our job to go out hunting for rigging on markets," Fisher
(Editing by Alexander Smith, David Evans and Cynthia Osterman)
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