Once again, the FX trading ‘cartel’ chat rooms are rigging the rates

It is almost unbelievable how short people’s memories are. Either that or how brazen and bold some people in some capacities can be.

Just a few years have passed since American, Swiss and British authorities came down like a pile of bricks on a number of large Tier 1 banks for fixing FX benchmark rates, largely by operating cartels between trading desks, and sharing information via messaging systems in order to profit fraudulently at the expense of counterparties.

The banks, which are quick to lay down the law to their liquidity taking customers, demand $100 million balance sheets before extending counterparty credit to OTC derivatives firms – which are their core business bread and butter – and perhaps most odious of all conduct last look execution practices and cherry-pick trades, something nobody else is allowed to do, is at it again.

According to a report by Bloomberg, the exact same company whose messenger was being abused by cartels of traders who are either now in jail or have been held responsible for the crushing fines and reputational damage to the Tier 1 banks for whom they worked, traders may have used as many as 200 online chat rooms to rig FX rates, far more than previously thought, a lawyer for investors told a London court Monday.

Marie Demetriou, a lawyer for investment funds suing seven banks, said that some of the newly discovered chat rooms were instant message groups that lasted just a few hours while others were “permanent” fixtures established over months.

The chat rooms, as well as emails, telephone calls and WhatsApp messages, will play a central role in a suit brought by investment funds. They’re suing banks including Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co over allegations they lost money as a result of illegal manipulation of the FX market, all of which were banks that were sued for unprecedented amounts of money by the authorities during the FX rate-rigging scandal, in an attempt by regulators to demonstrate that banks are not too big to fail.

As a result of the disclosures, the investors are now in the process of re-pleading their case, Demetriou said. They expect that when the remainder of disclosure is given, “further chat rooms and unlawful anticompetitive communications will be identified,” she said.

Citi, JPMorgan and Barclays were among five banks that agreed in 2019 to pay European Union fines totalling 1.07 billion euros ($1.3 billion) as part of a settlement with the antitrust regulator. Those probes focused on two cartels that traders ran on chat rooms called “Essex Express n’ the Jimmy” and “Three Way Banana Split,” swapping sensitive information and trading plans that allowed them to make informed decisions to buy or sell currencies.

Officials at the banks couldn’t be immediately reached to comment by Bloomberg.

The banks face lawsuits in the U.S. and U.K. over traders’ manipulation of benchmark foreign-exchange rates a decade ago. More than a dozen financial institutions have paid about $11.8 billion in fines and penalties globally in regulatory probes, with another $2.3 billion spent to compensate customers and investors.

The investment funds include Allianz, PIMCO, Brevan Howard and BlueCrest, and some of the world’s largest pension funds, including the four state pension funds of the Kingdom of Sweden and a Danish pension fund. A representative for the claimants declined to comment.

The funds engaged in very substantial volumes of FX trading between 2003 and 2013 — the period covered by the lawsuit — with more than 2.5 million trades identified to date, Ms Demetriou said.

It is little wonder that the FX industry is favouring non-bank market makers and that XTX markets are running away with the market share leadership position for FX dealing. They are quicker, fairer, more efficient, cheaper and most of all, they don’t hold our industry in contempt despite it being a major source of business for the investment banks, and most of all, they do not break the rules.