The rigging of the rand — how they did it

The Competition Commission’s indictment of 16 banks for forex rigging outlines, in excruciating detail, how traders at these banks, including Absa, Investec and Standard Bank, engaged in activities designed to rig a market with a daily turnover of $49bn, at the end of April 2016, according to the Bank for International Settlements.

Business Day has taken a closer look at the issue and pieced together how the rigging was done. It also emerged that a number of the traders identified in the commission complaint were not new to forex rigging. Here are the details:

In January, the US Federal Reserve permanently banned Jason Katz, who worked for BNP Paribas, Standard New York, and Barclays during the period of the commission’s investigation, from participating in the forex market due to his role in manipulating forex prices.

This followed an earlier $342m penalty against Barclays for control deficiencies related to forex trading. JP Morgan and Citigroup, which are named in the Competition Commission’s complaint, were among banks that agreed to pay $2.5bn in penalties to the US department of justice for currency rigging.

Later that same month, Citibank’s Christopher Cummins pled guilty to conspiring to fix prices in the department of justice’s long-running investigation into currency rigging.

In SA, not much has happened to traders since the Commission’s probe commenced in 2015, with public records showing Clint Fenton — whose LinkedIn profile states is a head trader at Investec — was removed from the JSE’s register of officers and traders on its interest rate and currency derivatives markets in July 2016.

Bloomberg reported Barclays’ Duncan Howes was suspended in May 2015, without citing reasons. Two Absa currency traders have also been suspended.

This is how their alleged actions, as detailed in the commission’s complaint, have hurt customers:

1. Maximising profits or avoiding losses

The players:

Jason Katz, BNP Paribas

Christopher Cummins, Citibank

Duncan Howes, Absa

Nicholas Williams, Barclays

Clint Fenton, Investec

Akshay Aiyer, JP Morgan

Murat Tezel, Australia and New Zealand Banking Group (ANZ)

What they did: These seven dealers posted nonexistent bids (paid by dealers for currencies on the market) and offers (prices quoted to customers wanting to buy either the dollar or rand) on trading platforms such as Reuters.

They did this to push the prices of bids and offers up or down. This helped them boost profits or avoid losses through cashing in the difference between bids and offers, which is called the bid-offer spread.

The spread is essentially the margin traders charge for their services.

How this hurt customers: the larger the size of the spread, the more money dealers made at the expense of the customer.

2. Fixing the bid-offer spread

The players:

Duncan Howes, Elaine Naidoo, John Daly, Premal Bhana and Thulani Kunene, Absa

Nicholas Williams and Peter Taylor, Barclays

Jason Katz, BNP Paribas, Standard New York, Barclays

Christopher Cummins, Citibank

Richard de Roos and Louis Friedman, Standard New York

Bryan Brownrigg, Standard Bank

Darren Dempsey, Nomura

Chris Harkins, Jason Atkins, Mark Chia, Bevan Murray, Luke Fryday, Tim Donnelly, Macquarie Bank

Murat Tezel, ANZ

Akshay Aiyer, JP Morgan

The traders agreed on the size of bid-offer spreads charged to customers for certain volumes of currencies exchanged.

How this hurt customers: the larger the size of the spread, the more money dealers made at the expense of the customer.

3. Agreeing to fix prices of bids and offers.

The players:

Duncan Howes, Absa

Nicholas Williams, Barclays

Gavin Cook, Bank of America

Jason Katz, BNP Paribas, Standard New York, Barclays

Christopher Cummins, Citibank

Bernard Barisic, James Mullaney, Matthew Sweeney, and Patrick McInerney, Standard Chartered

Paul Simister and Akshay Aiyer, JP Morgan

Chris Hatton, HSBC

Heinrich Putter, Credit Suisse

Clint Fenton, Investec

Murat Tezel, ANZ

Nigel Dousie, Commerzbank

What they did: they shared confidential customer information such as identities, positions and order information — including whether the customer planned to split a large order for dollars or rand into various small orders between different dealers.

How this hurt customers: sharing this information enabled these dealers to quote the same price to customers, theoretically enabling one to offer a "discount" compared to other dealers so the customer would be compelled to pick them, and guaranteeing business (at a higher cost to the customer) for the dealer.

4. Agreeing to co-ordinate times of trading

The players:

Duncan Howes, Absa

Nicholas Williams, Barclays

Gavin Cook, Bank of America

Jason Katz, BNP Paribas, Standard New York, Barclays

Christopher Cummins, Citibank

James Mullaney, Matthew Sweeney, Bernard Barisic, and Patrick McInerney, Standard Chartered

Paul Simister and Akshay Aiyer, JP Morgan

Chris Hatton, HSBC, Credit Suisse

Clint Fenton, Investec

Murat Tezel, ANZ

What they did: they refrained from trading at particular times, for example, when a trader had a large order — he would be allowed to go first to avoid driving prices up or down. Smaller trades would then follow.

How this hurt customers: this cheated customers out of benefiting from the higher prices if they were selling currencies or lower prices if they were buying.