StanChart settles forex rigging case

The commission hopes this week’s hearing before the Competition Appeal Court and the Standard Chartered Bank settlement will move the case toward a final resolution

London-based Standard Chartered Bank (SCB) reached a settlement with the Competition Commission yesterday, admitting to manipulating the USD/ZAR exchange rate in a case that dates back as far as 2007.

SCB has agreed to pay an administrative penalty of R42,7 million for its role in the so-called “rand rigging case” for a variety of offences: fixing bids, offers, bid-offer spreads, the spot exchange rate, and the exchange rate at the FIX (Financial Information eXchange, an information and price sharing system between investment banks and broker-dealers).

SCB is one of 28 local and foreign banks accused by the commission of rigging the USD/ZAR exchange rate between 2007 and 2013. The banks are accused of a “single overarching conspiracy” to fix the rand exchange rate through various communication channels, such as Bloomberg and Reuters chat rooms, and allocating markets among traders.

The commission says these actions constitute price fixing and market allocation, which violates the Competition Act.

The commission first brought forex rigging complaints against 19 banks in 2015 but later expanded this to 28.

The accused banks include Barclays, Barclays Africa, BNP Paribas South Africa, Investec, JP Morgan Chase, Nomura International, Macquarie Group, Bank of America Merrill Lynch, HSBC, and Citibank.

SCB participated in dividing markets by allocating customers whereby one trader would withdraw a bid or offer, allowing the trade to be filled by another trader and manipulating liquidity.

“The Commission welcomes SCB’s decision to reach a settlement on this matter and encourages other respondent banks to consider settling the complaint against them. Further, this settlement affirms the Commission’s pursuit of allegations related to the manipulation of the USD/ZAR currency pair, given the 2 ultimate impact of the currency manipulation on the value of the South African Rand,” said Competition Commissioner Doris Tshepe in a statement.

“No evidence of a conspiracy”

Meanwhile, the Competition Appeal Court (CAC) heard arguments this week from 13 banks that there was no evidence of a conspiracy, with two banks saying their traders were present in a single chat on one day. “This is not sufficient evidence that he (the trader) had knowledge of a broader conspiracy with the intention to contribute to it,” argued legal counsel for Macquarie.

The case has been running for eight years and has been mired in technical arguments, appeals and cross-appeals for much of that time. This may turn out to be the longest-running and most complex case ever filed by the commission, with the merits of the case still not argued.

It’s clear the banks have spared no expense in hiring the best legal minds in the country to argue their cases, raising a wall of objections to the commission’s case along the way. In March this year, the Competition Tribunal ruled that it had jurisdiction to hear the case, ruling that the 28 respondent banks are accused “of engaging in conduct considered the most egregious in competition law. Furthermore, the alleged conduct relates to fixing and manipulating the rand/dollar exchange rate, which has a central and crucial role in the South African economy.”

Some foreign banks questioned whether the commission or tribunal had jurisdiction in the matter, as some had no presence in SA at the relevant times. Some banks also argued the commission was out of time in bringing its complaint since more than three years had elapsed since the alleged offences occurred.

The tribunal categorised the banks into three groups: incola (local banks), local peregrini (foreign banks with a presence in SA) and pure peregrini (foreign banks without a presence in SA). The evidence before the tribunal established adequate connecting factors to enable it to exercise “both subject-matter and personal jurisdiction over all peregrini respondents.”

Other banks to follow?

SCB’s decision to settle with the commission may prompt others to do the same. Several global banks have already admitted guilt, including two former traders with Barclays and Citigroup and former JPMorgan trader Akshay Aiyer, who was sentenced to a brief stint in prison.

The commission’s primary evidence is 158 chats involving 28 banks over seven years. This was flimsy evidence of a conspiracy, argued the banks. However, the tribunal ruled in March that a single overarching conspiracy “does not necessarily require that all members of the conspiracy meet at the same time in the same room or for that matter that each member must have met with every other member of that conspiracy.

What it does require is contact between firms, either directly or through an intermediary, and a common objective to which the participants consider themselves to be bound.”

The commission hopes this week’s hearing before the CAC and the SCB settlement will move the case toward a final resolution. — Moneyweb.