European Commission slaps €1.07bn fine on Barclays, RBS, Citigroup, JPMorgan and MUFG for spot FX cartel participation

Maria Nikolova

The Commission has fined the banks for taking part in two cartels in the Spot FX market for 11 currencies.

The European Commission has just announced the imposition of a heavy fine on Barclays, The Royal Bank of Scotland (RBS), Citigroup, JPMorgan and MUFG over their participation in spot FX trading cartels.

In two settlement decisions, the European Commission has fined the banks for taking part in two cartels in the Spot Foreign Exchange market for 11 currencies – Euro, British Pound, Japanese Yen, Swiss Franc, US, Canadian, New Zealand and Australian Dollars, and Danish, Swedish and Norwegian crowns.

The first decision (so-called “Forex – Three Way Banana Split” cartel) imposes a total fine of €811.2 million on Barclays, RBS, Citigroup and JPMorgan.

The second decision (so-called “Forex-Essex Express” cartel) imposes a total fine of €257.7 million on Barclays, RBS and MUFG Bank.

The Three Way Banana Split infringement encompasses communications in three different, consecutive chatrooms (“Three way banana split / Two and a half men / Only Marge”) among traders from UBS, Barclays, RBS, Citigroup and JPMorgan. The infringement started on 18 December 2007 and ended on 31 January 2013.

The Essex Express infringement encompasses communications in two chatrooms (“Essex Express ‘n the Jimmy” and “Semi Grumpy Old men”) among traders from UBS, Barclays, RBS and Bank of Tokyo-Mitsubishi (now MUFG Bank). The infringement started on 14 December 2009 and ended on 31 July 2012.

UBS is an addressee of both decisions, but was not fined as it informed the Commission of the existence of the cartels.

The Commission’s investigation has shown that some individual traders in charge of Forex spot trading of these currencies on behalf of the relevant banks exchanged sensitive information and trading plans, and occasionally coordinated their trading strategies through various online professional chatrooms.

The commercially sensitive information exchanged in these chatrooms related to:

  • 1) outstanding customers’ orders (i.e. the amount that a client wanted to exchange and the specific currencies involved, as well as indications on which client was involved in a transaction),
  • 2) bid-ask spreads (i.e. prices) applicable to specific transactions,
  • 3) their open risk positions (the currency they needed to sell or buy in order to convert their portfolios into their bank’s currency), and
  • 4) other details of current or planned trading activities.

The information exchanges, following the tacit understanding reached by the participating traders, enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when.

In some cases, these information exchanges also allowed the traders to identify opportunities for coordination, for example through a practice called “standing down” (whereby some traders would temporarily refrain from trading activity to avoid interfering with another trader within the chatroom).

Most of the traders participating in the chatrooms knew each other on a personal basis – for example, one chatroom was called Essex Express ‘n the Jimmy because all the traders but “James” lived in Essex and met on a train to London. Some of the traders created the chatrooms and then invited one another to join, based on their trading activities and personal affinities, creating closed circles of trust.

The traders, who were direct competitors, typically logged in to multilateral chatrooms on Bloomberg terminals for the whole working day, and had extensive conversations about a variety of subjects, including recurring updates on their trading activities.

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