Forex manipulation – US antitrust findings as evidence of infringement of European laws

08 Jun 2015

Last month, US and European financial services regulators along with US antitrust regulators fined a raft of major banks for foreign exchange rate benchmark manipulation. European antitrust regulators were conspicuous by their absence.

The European Commission is undertaking its own antitrust investigation of forex markets with a decision expected later this year, but there has been little news of it.

For UK entities who believe they have suffered from forex manipulation, a finding that the banks have infringed European antitrust law (Article 101) would be more useful than findings of infringement of financial regulations. Antitrust infringement can act as a springboard for follow-on damages actions whereas there is no equivalent right of action pursuant to breaches of the Financial Conduct Authority’s Principles for Businesses on which its fines are based.

Pending an infringement decision by the European Commission, the factual findings in the banks’ plea agreements concluding the US Department of Justice antitrust investigation provide useful material for such a claim provided it concerns Euro/USD trading. The banks have only pleaded guilty to manipulation relating to that currency pairing.

The agreements of JPMorgan, Barclays, Citicorp and RBS are identical to each other, that the banks:

"entered into and engaged in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for, the Euro/U.S. Dollar (“EUR/USD”) currency pair exchanged in the foreign currency exchange spot market (“FX Spot Market”), which began at least as early as December 2007 and continued until at least January 2013, by agreeing to eliminate competition in the purchase and sale of the EUR/USD currency pair in the United States and elsewhere, in violation of the Sherman Antitrust Act, 15 U.S.C. § 1."

In summary, the main finding against the four banks is that their Euro-Dollar traders formed a group called “the Cartel” which used an exclusive electronic chat room and coded language to manipulate benchmark rates including the 1:15pm European Central Bank fix and WM/Reuters’s 4pm London fix.

However, the Cartel’s manipulation of the Euro-Dollar forex market was not restricted to benchmarks. According to the DoJ statement:

“these traders also used their exclusive electronic chats to manipulate the Euro-Dollar exchange rate in other ways. Members of “the Cartel” manipulated the Euro-Dollar exchange rate by agreeing to withhold bids or offers for Euros or Dollars to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators. By agreeing not to buy or sell at certain times, the traders protected each other’s trading positions by withholding supply of or demand for currency and suppressing competition in the FX market.”

Further details can be found in the “factual basis for offences charged” from §4 onwards of the banks’ respective plea agreements; but they do not include quotes of chatroom discussions or examples of specific manipulations that would assist claimants. The plea agreements are nonetheless helpful because they can indicate areas in which to seek disclosure of evidence relevant to a particular alleged loss although they do not provide such evidence themselves.

As well as the four banks mentioned above, UBS was also fined, but the facts of its breaches are somewhat different, as set out in Exhibit 1 to its plea agreement.

The focus is UBS’s concealment from its customers of markups on forex trading; but this was a unilateral practice, not a collusion with other banks that might violate Article 101 or Chapter 1. However, UBS do also admit that one of its forex traders conspired with other banks in the spot market by agreeing to restrain competition in the purchase and sale of Dollars and Euros. 

The position of UBS also differs from that of the other banks because its markup deception and collusive conduct breached its non-prosecution agreement with the DoJ resolving the LIBOR investigation. Given this breach, UBS has agreed to plead guilty to wire fraud for its LIBOR manipulation and to pay a separate penalty for that.

Those contemplating a claim against UBS in relation to its manipulation of LIBOR will find a great deal of factual information in Exhibit 3 of the bank’s plea agreement, including many transcripts of LIBOR submitter and trader discussions.

Additional information