Authorities launch probe into forex rigging by SA big banks

Thirteen years ago, CEO of the SA Chamber of Business Kevin Wakeford and investigative journalist Barry Sergeant took on the SA establishment to their great cost. They alleged that financial institutions had been manipulating the Rand, profiting hugely while driving the currency to unrealistically low levels – troughs that have not since been revisited. They called for a Rand Commission and found a ready ear in the office of then President Thabo Mbeki. None of it ended well. The Commission gave the guilty a mere slap on the wrist. Wakeford was fired. And Sergeant took a beating professionally, one from which he only started to recover when we linked up again at Moneyweb. These two courageous gents will doubtless be smiling at today’s Bloomberg story which tells us the SA regulators are once again digging into alleged foreign exchange manipulation by a group of local banks. The regulators could do worse than giving Sergeant and Wakeford a call. Or at the very least, reading Sergeant’s book on the subject: The Assault on the Rand (and watch our interview with the author). – Alec Hogg    

By Renee Bonorchis and Mike CohenBarry-sargeant sergeant

(Bloomberg) — South African regulators are investigating alleged foreign-currency market rigging for the first time in 13 years in a probe that will examine practices at banks including JPMorgan Chase & Co. and Citigroup Inc.

The Competition Commission suspects 11 companies of using electronic messaging software to coordinate deals when quoting prices to customers, it said in a statement Tuesday. The inquiry follows a global probe into manipulation of the $5.3 trillion-a- day currency market that began in the U.K. two years ago. That scrutiny has now been extended to South African banks, including Standard Bank Group Ltd. and Barclays Africa Group Ltd.

“The market is a massive one, so it’s going to be very difficult for one or two banks to manipulate the rate on their own,” Ion de Vleeschauwer, head dealer at Bidvest Bank Ltd., said by phone from Johannesburg. “You’d have to have collusion between several banks. The regulators obviously felt it was prudent to look at the South African market. I’m not aware there’s been any wrongdoing.”

The rand accounted for 1.1 percent of global foreign exchange market turnover in 2013, the 18th most-active currency, according to a Bank for International Settlements survey released in September of that year. The currency was 0.1 percent weaker at 11.8939 per dollar at 8:22 p.m. on Tuesday.

Then-President Thabo Mbeki ordered an investigation into irregular rand trades after the currency dived 37 percent against the dollar in 2001. While illicit trades weren’t proved, investigators found transactions arranged by Deutsche Bank AG led to an outflow of money from South Africa, depleting the country’s foreign reserves.

Deutsche Bank agreed to boost South African reserves by 800 million rand ($67 million) as part of an accord that ended the eight-month probe.

Barclays, BNP

The central bank said Tuesday that it understood the latest allegations of misconduct related to offshore transactions.

“The banks will take flak,” said Garth Mackenzie, founder of Johannesburg-based TradersCorner.co.za, an independent trader. “I can’t imagine the authorities would launch into this without a high chance of finding something.”

Other entities named by the commission include Investec Ltd., BNP Paribas SA, BNP Paribas South Africa, Citigroup Global Markets (Pty) Ltd., Standard New York Securities Inc., a unit of Standard Bank, and Standard Chartered Bank.

Standard Chartered, Investec and Barclays Africa said they will cooperate with the commission, while Standard Bank, BNP and Citigroup said they couldn’t immediately comment. Kate Haywood, a spokeswoman for JPMorgan in London, declined to comment.

‘Clear Message’

Traders allegedly fixed prices in relation to bids, offers and bid-offer spreads for spot, futures and forwards currency trades, the commission said in a statement.

“Conduct of this nature distorts the price of foreign exchange and artificially inflates the cost of trading in foreign currency paired with the South African rand,” Competition Commissioner Tembinkosi Bonakele said. “With this investigation we are sending a clear message that we will pursue cartels affecting South Africa wherever they take place.”

Once the commission has probed what it thinks may be prohibited practices, it can impose penalties. It also then makes recommendations to the country’s Competition Tribunal, which adjudicates these cases. Companies can appeal fines before the Competition Appeal Court.

“The reality of the situation is the forex market in South Africa is controlled by the big banks,” said Patrick Mathidi, the head of core strategies at Momentum Asset Management in Johannesburg. Many organizations targeted abroad by such probes have settled them, because they “can take a lot of time and effort and they can be disruptive to the operations of the banks,” he said.

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