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HSBC

HSBC and StanChart among 15 banks probed for rigging Brazilian currency

Investigation comes after six financial giants settle US charges for US$5.8 billion

PUBLISHED : Friday, 03 July, 2015, 9:08am
UPDATED : Friday, 03 July, 2015, 6:24pm

Fifteen of the world’s largest banks are under investigation on suspicion of rigging the Brazilian currency, antitrust watchdog Cade said, the first such probe in one of the busiest foreign-exchange markets globally.

In a document, Cade alleged that the banks colluded to influence benchmark currency rates in Brazil by aligning positions and pushing transactions in a way that deterred competitors from the market between 2007 and 2013, at least. Foreign-exchange trading in Brazil is estimated at about US$3 trillion a year, excluding swaps and derivative transactions.

The banks named in the Cade probe are Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse Group, Deutsche Bank, HSBC Holdings, JP Morgan Chase, Morgan Stanley, Nomura Holdings, Royal Bank of Canada, Royal Bank of Scotland Group, Standard Bank Group, Standard Chartered and UBS.

The Brazilian investigation comes weeks after six of the world’s largest financial institutions agreed to pay US$5.8 billion to the US government to settle charges of currency rigging. The US probe took more than five years and five of those banks, which are being probed by Cade, pleaded guilty.

Globally, currency trading is estimated at about US$4.7 trillion a day and has been targeted in recent government probes in Europe, the United States and Japan. Those probes allege that banks prioritised the execution of their own currency trades at the expense of client orders, taking advantage of the fact that those deals often take place away from exchanges.

The Cade probe highlights the growing importance of international cooperation in efforts to root out different forms of market rigging. It sets a milestone for a country long characterised for lax law enforcement standards for white-collar crime.

"The probe will probably follow similar patterns to those that took place in larger financial hubs, with banks seeking a settlement with Cade instead of fighting the accusations in courts," said Luís Andre de Moura Azevedo, a capital markets law professor with Fundacao Getulio Vargas in Sao Paulo.

There were no signs that Brazilian banks participated in the scheme, Cade superintendent Leonardo Frade said at a news conference in Brasilia. The watchdog had yet to estimate how much money the banks or the individuals cited in the probe made with the scheme, he added.

In the current probe, Cade said traders who described themselves as "The Cartel" or "The Mafia" used online chat rooms to fix their positions ahead of market trades. A further 30 individuals that might have participated in the scheme were also under investigation, the watchdog said.

At least one of the alleged participants was cooperating with the current investigation, Frade said. The person was seeking total immunity from any type of penalty that Cade could impose, such as fines and temporary or permanent bans from the securities industry, he noted.

The Cade document said traders probably frontran client orders and pushed through trades that affected the way benchmarks like Brazil’s PTax and WM/Reuters rates were set. They might have also colluded to fix spreads on client trades, unveil spot and future trades that should have been kept confidential and even deal flow volume data, the document added.

Benchmarks like the PTax or the WM/Reuters are used by investment firms to value their assets on a day-to-day basis.

"We’re trying two different fronts in this investigation: first, about the banks’ trading practices with onshore Brazilian clients and, second, how the banks traded the Brazilian real for other currencies," Frade said.

The trades were shared and discussed in online chats through Bloomberg terminals, Cade said. Bloomberg and Thomson Reuters Corp, the parent company of Reuters News, compete in the financial information market, providing analytical and communication tools for investment professionals.

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