Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Global financial institutions allegedly conspired to manipulate foreign exchange futures benchmark rates, (Jun 11, 2015)

By Linda O’Brien, J.D., LL.M.

Seven domestic and foreign global financial institutions and their subsidiaries colluded to manipulate and rig the global benchmarks for foreign exchange futures contracts and options, known as the London Fix, on the Chicago Mercantile Exchange in the United States, according to a complaint filed in the federal district court of New York City (Teel v. Bank of America Corporation, June 9, 2015).

Banking institutions Bank of America Corporation, Barclays Bank Plc, Citigroup, Inc., HSBC Holdings plc, J.P. Morgan Chase & Co., The Royal Bank of Scotland Group plc (RBS), and UBS AG and their subsidiaries deal in foreign currency and participate in the global trading of foreign exchange (FX) future contracts and options on futures contracts on the Chicago Mercantile Exchange CME or other exchanges. Robert Teel is an investor who has engaged in transactions for the purchase and sale of euro and U.S. dollar FX futures contracts and options on futures contracts on the CME.

In an FX futures contract, an investor agrees to buy or sell a foreign currency at a set price and date in the future. The prices of FX futures are directly tied to FX benchmarks and FX spot prices. Two critical FX benchmark rates are the London Fix and the CME daily settlement price. The FX spot market is the world’s largest and most liquid financial market, where participants actively buy, sell, exchange, and speculate on currencies. The pricing of FX spot rates is determined by the supply and demand of the currency in the market.

The complaint states that, beginning in January 2008, the defendant banks conspired to manipulate FX spot prices and benchmark rates to benefit their trading activities, primarily in connection with the setting of the London Fix. Although banks typically guard proprietary real-time trade information, the defendants shared confidential information with one another through voice trading operations, chat rooms, electronic messaging, and email. Through their collusion, the defendants developed and executed trading strategies to manipulate the spot prices and benchmark rates for selected currencies.

The defendants actively manipulated the FX spot market and benchmark rates through various tactics, such as “front running/trading ahead,” “banging the close,” and “painting the screen.” Traders “front run” on customer information when they receive customer orders that could move the market and then trade their own proprietary positions prior to executing their customers’ trades. The banks also engaged in “banging the close” which occurs when traders break up large customer orders into small trade and concentrate the trades before and during the daily fixing window in order to intentionally spike the published rates up or down. “Painting the screen” occurs when banks place phony orders to create the illusion of trading activity in a given direction in order to move the rates prior to the fixing window, the complaint alleges.

Regulatory agencies in the United States, United Kingdom, European Union, Switzerland, Germany, Asia, Australia, New Zealand, and the international Financial Stability Board commenced investigations into the manipulation of the FX market. As a result of the investigations, since November 2014, five of the defendants have entered into settlement agreements, pleaded guilty, and/or paid penalties for their participation in the attempted manipulation of foreign exchange benchmark rates.

The defendants were able to keep their collusive and manipulative conduct secret by communicating in private chat rooms, instant messages, and through email, which were not available to the plaintiff. The substance of the defendants’ communications was unknown to the plaintiff until November 2014 when government investigations disclosed settlements which revealed the nature of the defendants’ misconduct. The plaintiff has acted diligently to bring his claims promptly and, as a result of the fraudulent concealment of the conspiracy, the statute of limitations was tolled for the plaintiff’s claims, the complaint states.

The defendants’ anticompetitive conduct adversely affected competition by artificially ensuring advantageous market movements in the FX spot prices and benchmark rates. The changes in the spot prices and benchmark rates had an immediate and corresponding effect on FX futures contracts and options. As a result, the plaintiff was injured in the form of diminished profits or increased losses on his exchange-traded FX futures or options, according to the complaint.

Teel asserts claims for unlawful manipulation, vicarious liability, false reporting, and aiding and abetting in violation of Section 1 of the Sherman Act and the Commodity Exchange Act. The action seeks declaratory and injunctive relief, actual and treble damages, disgorgement, pre-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:15-cv-04436-LGS.

Attorneys: Louis F. Burke (Louis F. Burke, P.C.) and Michael Brickman and James C. Bradley (Richardson, Patrick, Westbrook & Brickman, LLC) for Robert L. Teel.

Companies: Bank of America Corporation; Barclays Bank Plc; Citigroup, Inc.; HSBC Holdings plc; J.P. Morgan Chase & Co.; The Royal Bank of Scotland Group plc; UBS AG

News: Antitrust NewYorkNews