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Probes into forex trading spread across globe

Section: Daily Dispatches

By Daniel Schäfer and Caroline Binham
Financial Times, London
Friday, November 1, 2013

A global probe into the manipulation of foreign exchange markets escalated dramatically on Friday when it emerged that Barclays had suspended six traders and two of the largest US banks revealed they had become embroiled in the investigation.

Revelations that Barclays had suspended six staff, including its chief currencies trader in London, capped a torrid week for some of the world's largest banks with signs that a wave of new regulatory probes across three continents poses a growing threat to earnings.

With more and more banks becoming ensnared and senior figures being put on leave, bankers and investors said the affair increasingly resembled the Libor rigging scandal. The Libor probe has so far led to the dismissal of many dozens of traders, while four banks and one interdealer broker have paid a total of $3.5 billion in fines.

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Authorities including those in Switzerland, the UK, Hong Kong, and the US have opened preliminary investigations into whether some of the biggest banks in the world rigged the foreign exchange market, which has daily volumes of $5.3 trillionn and is used by millions of companies, institutional funds and retail investors.

Crucial benchmark rates in the mostly unregulated market are set based on transactions made during short windows of 60 seconds for the largest currencies. Regulators are investigating if traders colluded to move these benchmarks, although none has been formally accused of wrongdoing.

After a series of high-level suspensions this week, there are now at least a dozen traders across six banks on leave. They include several of the most senior traders in the market such as Barclays' Chris Ashton, who oversees the bank's voice-spot trading around the world.

At least six of the leading banks in the foreign exchange market -- where everything from the leading reserve currency, the US dollar, to smaller currencies such as the Hungarian forint are being traded -- have now confirmed they have received requests from regulators.

Citigroup and JPMorgan on Friday became the latest banks to confirm they were co-operating with regulators on the investigations, joining Barclays, UBS, Deutsche Bank, and Royal Bank of Scotland.

US investment bank Goldman Sachs has also started to look internally for any signs of wrongdoing, as has HSBC, according to people familiar with the situation. All the banks mentioned declined to comment. Credit Suisse is also looking into the matter, it said in an earlier statement.

Authorities around the world are also examining whether other benchmark rates, including oil-spot markets, have been manipulated.

"This [litigation] risk is by far the one that worries me the most," said the global head of trading at a large investment bank. "It is like banks don't have an immune system any longer. A cold can kill you these days."

In the UK, Sir Philip Hampton, chairman of the majority state-owned RBS, played down the chances of the taxpayer ever receiving a profit on its L45 billion investment, partly because of the mounting costs of litigation and customer compensation.

He said that more than half of the L45 billion that was pumped into the bank had been eroded by "irrecoverable" losses -- including its bill for mis-sold payment protection insurance, interest rate swaps, and Libor charges.

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