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Big Banks in Murky Waters, Plea for Claim Dismissal Annulled

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On Thursday, U.S. District Judge Lorna Schofield in Manhattan rescinded the plea of major banks, seeking dismissal of the claims under the lawsuit filed by a group of large institutional investors, including BlackRock Inc (BLK - Free Report) , public pension fund California State Teachers' Retirement System (CalSTRS), and Allianz SE's Pacific Investment Management Co in November 2018.

The U.S. judge has allowed institutional investors to pursue their lawsuit against 15 major banks. Amid widespread global investigation by U.S., British and Swiss regulators into the alleged foreign-exchange market manipulation, the banks were accused for rigging prices in the $6.6 trillion-a-day foreign-exchange market.

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

Probes and Allegations

Around 1,300 plaintiffs, including many mutual funds and exchange-traded funds, 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 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.

"This is an injury of the type the antitrust laws were intended to prevent," Schofield wrote in a 40-page decision.

Per the banks’ counter arguments, the plaintiffs’ accusations did not include any transactions under which the alleged manipulation has caused losses. Therefore, portions of some the claims were annulled by Schofield and some Allianz plaintiffs were also dismissed from the case.

No comments were received from lawyers of the plaintiffs.

Plaintiffs had 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.

Currency-market rigging is not new to 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 faced 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 afore-mentioned lawsuit primarily hinged upon the traders at the banks that manipulated the foreign-exchange rates, which served as benchmarks for huge amount of investments. The traders allegedly colluded to manipulate prices, and influenced customers by maneuvering their bets based on clients’ orders.

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, giving rise to negative financial consequences.

Conclusion

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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