Forex judgment: what happens in New York, stays in New York?


Financier Worldwide Magazine

October 2015 Issue

October 2015 Issue

The recent US case of Foreign Exchange Benchmark Rates Antitrust Litigation, US District Court, Southern District of New York has propelled the foreign exchange (Forex) scandal back into the media glare – and with it, opened a legal Pandora’s box.

The recent judgment saw the majority of the defendants accused of Forex price-rigging agree to settlements totalling more than £2bn. The size of the award in favour of the claimant investors has reverberated not only through the financial markets, but also through the legal communities in a number of jurisdictions. Of the 16 defendants, Bank of America, HSBC, Barclays, BNP Paribus, Citi, Goldman Sachs, JP Morgan, RBS and UBS have now settled. The high profile litigation is continuing against Credit Suisse, Deutsche Bank, Morgan Stanley, Bank of Tokyo-Mitsubishi, RBC Capital Markets, Société Générale and Standard Chartered. Whilst, as one would expect, complex legal pleadings were presented, the claims largely centred on accusations that the relevant Forex Traders used chat rooms and emails to manipulate the markets using techniques including ‘front-running’, ‘banging the close’ and ‘painting the screen’. ‘Front-running’ involves exploiting knowledge about looming client Forex orders to build up positions and drive up an exchange rate prior to a client’s trade. ‘Banging the close’ involves placing a large number of small orders just before a relevant trade, to move a price, and ‘painting the screen’ involves fake transactions with other traders during the fixing period similarly to manipulate the exchange rate.

Such techniques were alleged to have resulted in large profits, at the expense of investors. All three involve manipulation or exploitation of client information and various combinations of the three were used as a foundation for the claims, based on evidence from PCs and Bloomberg trading terminals. Not only have these provided the investor claimants with legal ammunition, they have also pulled back the curtain to reveal the commonplace nature of such market trading practices. Whilst the case continues for certain defendants, it is thought that these settlements in New York will open the floodgates for claims in relation to other prominent Forex markets, such as London, Hong Kong and Singapore. Obviously, these all also happen to be prominent litigation ‘hubs’.

What is of legal interest is the link potentially established in this litigation between such techniques (which are allegedly widely used) and the liability which some suggest has commercially been ‘established’ by the fact of the agreed settlements – that is, there is an assumption of liability based on successful Forex divisions. There is a concern in financial markets that liability may well now be alleged en masse based on the assumption that similar trading practices took place, rather than the detailed legal analysis of the constituent parts normally necessary framing any cause of action. There can be no doubt that some traders may have a history of behaviour that many would find commercially objectionable. However, many would argue that from a legal perspective it is an unjustifiable leap to automatically assume liability for banks with a successful Forex division.

As such, the continuing litigation against the remaining banks will be followed keenly, with any judgment thoroughly pored over. However, should such litigation unfold, there is the sense that many of the large banks had already been preparing for the likelihood of this happening, by making financial provisions. Both RBS and HSBC specifically mentioned the lawsuits months prior to the settlements, suggesting to some an air of inevitability about the eventual settlements.

There is a strong feeling in the legal market that cases will now be brought outside the US. Certainly, it would be surprising if the alleged collusion and behaviour which is part of the factual matrix supporting the New York litigation was restricted to the US. Many argue that these are endemic trading practices which will have been commonplace in a number of major Forex markets. However, even if the same trading practices occurred in different jurisdictions, lawyers would need to rely on alleging different legal offences and proving causes of action unique to that jurisdiction. Nevertheless, it would be surprising if lawyers in any of these jurisdictions struggled to find a suitable cause of action, if such factual behaviour could be proved. Indeed, when coupled with the fact that banks have already been hit with record fines for Forex manipulation in the UK, (in excess of £6bn from the FCA), in tandem with fines from the DOJ in the US, it suggests that there is already a strong prevailing wind in favour of claimants.

However, it is far from a given that there will be similar results for claimants in the UK. It is broadly agreed that to maximise pressure on the banks in any civil suit, there would need to be concerted pressure from a class action, which in the UK do not enjoy the storied track record that they do in the US. This is a classic example of how a different legal landscape can drastically alter the momentum associated with claims underpinned by allegedly global practices. However, notwithstanding that class actions do not have an established record in the UK, new anti-competition legislation supporting collective actions may well help such claimants.

There is another distinct element to the next stage – the regulatory response. There is a growing sense that such trading practices mean that accountability to regulators needs to increase. To that end, the volume of the voices calling for more effective sanctions is certainly not a surprise. Many feel that the threat of imprisonment must be put forward as the ultimate deterrent and it will be interesting to see whether or not this comes to the fore, creating a hydra of civil, criminal and regulatory strands, as with the recent LIBOR scandal. In any event, the legal community waits with bated breath to see whether what happens in New York stays in New York.


Richard Viegas is a senior associate at Bristows LLP. He can be contacted on +44 (0)20 7400 8000 or by email:

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Richard Viegas

Bristows LLP

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