FOREX manipulation


December 2014 Issue

December 2014 Issue

FOREX (the foreign exchange market) is a global decentralised market for the trading of currencies. The main participants are the larger international banks, with four banks – Deutsche Bank, Citigroup, Barclays and UBS – accounting for half of all trading.

One of its unique features is that it is effectively unregulated. US$5.3 trillion changes hands every day on FOREX, with London dominating with approximately 40 percent of the trading by volume.


In May 2013, a whistleblower, a trader who used to work for one of the leading banks, gave the Financial Conduct Authority (FCA) information about chat room discussions between rival traders, allowing them to share information about pricing and order books.

It is alleged that a number of banks have sought to manipulate the foreign currency daily benchmark, known as the WM/Reuters Fix, so as to benefit their own positions at the expense of some of their clients.

Investigations are ongoing and as yet there has been no official report or published findings, but it is alleged that traders have engaged in a number of different types of wrongdoing.

These include: (i) sharing confidential information about client orders in various chat rooms, some of which, unhelpfully from the banks’ perspective, were known as ‘the Cartel’, ‘the Mafia’ and the ‘Bandits’ club’; (ii) ‘front running’ – using knowledge about impending client orders to build up positions ahead of the Fix in order to make a profit at the expense of the banks’ clients. The clients effectively end up paying more by virtue of the traders’ actions; (iii) ‘banging the close’ – this involves concentrating the trade of client orders in the moments before and during the 60 second window thereby pushing rates up or down; (iv) ‘painting the screen’ – engaging in fake transactions with other traders that will then be undone so as to push the rate one way or the other in order to benefit their ultimate position; and (v) ‘personal account trading’ – using their own money to trade ahead of client orders that are expected to move the market and which they are aware of by virtue of their own client orders or those of other banks through the chat room discussions.

Current situation

Over 12 regulators across Europe, the US and Asia have launched investigations. In total, 15 banks are currently being investigated by the FCA, including Barclays, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, RBS and UBS. Some of the banks have suspended traders, or even dismissed them, as part of a probe into suggestions that currency markets could have been rigged. At present, over 30 traders have either been suspended, fired or placed on leave. Some of these traders are also being investigated by the Serious Fraud Office.

Allegations have also emerged that the Bank of England (BOE) was aware of attempts to rig the FOREX market as early as 2006. Minutes of a meeting published following a Freedom of Information Request suggests that BOE staff were told of “attempts to move the market”.

Such claims have been denied by Paul Fisher, Director of Markets for the BOE. However, the BOE’s Governor, Mark Carney, has admitted to MPs that the FOREX manipulation allegations are “as serious as LIBOR, if not more so”.

In recognition of the seriousness of the allegations, the BOE has appointed Lord Grabiner QC (a very senior and experienced English barrister) to conduct an independent inquiry as to the extent of the BOE’s knowledge. Lord Grabiner QC and his legal team are in the process of working their way through a vast amount of documentation and conducting witness interviews. The costs being incurred are likely to be very significant indeed.

Prompted by the FOREX scandal, the Swiss Wettbewerbskommission confirmed in April of this year that it had uncovered signs of illegal activity and announced an investigation into potential FOREX manipulation by eight banks. This was closely followed by announcements of full investigations by the Hong Kong Monetary Authority and the New Zealand Commerce Commission.

Legal impact

Unsurprisingly, class actions have already been commenced in the US, including one filed by pension funds against a number of banks in the Southern District of New York. At present, there do not appear to be any English proceedings underway. However, it is expected that a potential tidal wave of litigation will follow the outcome of the regulatory investigations and, in particular, the publication of any Final Notice by the FCA or equivalent in the US. Again, the legal costs being incurred by the banks are truly astronomical.

While the FOREX scandal is at a much earlier stage than the LIBOR scandal, the potential for claims is probably greater. The principal drivers for this are the sheer size of the market and also that, if what is alleged is true, potential claimants may not encounter the same difficult causation issues as faced in respect of the LIBOR manipulation. The link to the customer in a FOREX trade is that much more direct and it is likely to be easier to demonstrate that the wrongful action gave rise to a direct loss.

If a trader at a bank has shared confidential information about a client’s order and then, working in tandem with a trader at another bank, sought to manipulate the benchmark, or otherwise sought to structure that bank’s client trades in such a way as to make a profit at the expense of the client, the resulting claim would appear to be much more straightforward than the equivalent LIBOR claim.


Adam Strong is a partner at Wragge Lawrence Graham & Co LLP. He can be contacted on +44 (0)20 7759 6602 or by email:

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Adam Strong

Wragge Lawrence Graham & Co LLP

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