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Big Banks in Murky Waters, Now Accused for FX Manipulation

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Amid widespread global investigation by U.S., British and Swiss regulators into the alleged foreign exchange market manipulation, 16 major global banks have been sued by a group of large institutional investors, including BlackRock Inc BLK, public pension fund California State Teachers' Retirement System (CalSTRS) and Allianz SE's Pacific Investment Management Co, for such manipulation. Banks have been accused for rigging prices in the $5.1 trillion-a-day foreign exchange market.

On Wednesday, in the U.S. District Court in Manhattan, the lawsuit was filed by the plaintiffs. Notably, they have taken the decision to "opt out" of worldwide alike litigation that inculcated $2.31 billion (£1.76 billion) of settlements with 15 of the banks. Notably, the opt out option is used with the hope of recovering more by suing personally.

Accused banks include Bank of America (BAC - Free Report) , Barclays PLC (BCS - Free Report) , BNP Paribas, Citigroup (C - Free Report) , Credit Suisse (CS - Free Report) , Deutsche Bank (DB - Free Report) , Goldman (GS - Free Report) , HSBC Holdings PLC (HSBC - Free Report) , JPMorgan (JPM - Free Report) , Morgan Stanley (MS - Free Report) , Mitsubishi UFJ MUFG, Royal Bank of Canada (RY - Free Report) , Royal Bank of Scotland (RBS - Free Report) , Societe Generale, Standard Chartered and UBS Group AG (UBS - Free Report) .

Among the above mentioned banks, major U.S. banks, including JPMorgan and Citigroup, carry a Zacks Rank #2 (Buy), while BofA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Probes & Allegations

Plaintiffs have accused banks of engaging in anti-competitive price fixing activities during 2003-2013, in order to rule out competition in the space, and for manipulating the benchmark rates, including WM/Reuters.

Per the accusations, traders or “The Mafia” or “The Cartel” or "The Bandits' Club”, of the banks allegedly fixed client spreads and shared confidential data in the currency market pertaining to spot and future trades, as well as those related to volume of deal flow. "Front running," "banging the close," "painting the screen" and "taking out the filth" to rig benchmark rates are among the other accusations.

"By colluding to manipulate FX prices, benchmarks, and bid/ask spreads, defendants restrained trade, decreased competition, and artificially increased prices, thereby injuring plaintiffs," the 221-page complaint noted.

Currency market rigging is not a new affair in the banking industry. Earlier, some big banks were penalized for rigging the London interbank offered rate (LIBOR) — a benchmark for credit card rates and other loans.

Globally, banks have been fined with more than $200 billion in penalties, in recent years, following investigations into their shoddy malpractices, including interest-rate manipulation, violation of agreements and inadequate selling of a number of financial products.

The current lawsuit primarily hinges upon the traders at the banks that manipulated the foreign exchange rates, which served as benchmarks for huge amount of investments. These traders allegedly colluded to manipulate prices, and influenced customers by maneuvering their bets based on the orders of the clients.

Regulators across the globe dealt seriously with the allegations of banks having manipulated WM/Reuters rates used for determining foreign exchange prices. WM/Reuters rates are published hourly for 160 currencies and half-hourly for the 21 most-traded ones. Hence, it is a widely accepted standard, the rigging of which necessarily undermined the importance of the rates and gave rise to negative financial consequences.


Regulatory authorities are investigating scandals further related to the heightening foreign exchange rate fixing and are determined to put forward a landmark judgment to terminate such shrewd practices in the future, bring justice to the sufferers, and punish the wrongdoers. While settlement of such issues will put to rest a long-drawn investigation and bring reprieve to the banks, this comes as a huge blow to their financials.

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