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U.K. Regulator Eyes Currency Market Manipulation

CNN Money

Regulators in the United Kingdom are looking into allegations that traders from some of the world's largest banks have been manipulating benchmark foreign-exchange rates to make profits on the backs of clients.

Bloomberg News broke the story earlier this week, citing interviews with several anonymous traders who claim the practice has been occurring for at least 10 years. [...]

Because the 4 p.m. benchmark rate is calculated in just a 60-second window, the traders interviewed by Bloomberg say it's easily manipulated via a process known as "banging the close." Colluding with counterparts at other banks, they claim, traders often execute large numbers of transactions during the measurement window with the aim of moving the benchmark rate up or down and maximizing profits at the expense of clients.

"Acting legitimately in your own interest, that's what traders do," said Wallace Turbeville, a senior fellow at the public policy organization Demos and a former investment banker at Goldman Sachs. "That's different from going outside what you normally do and making money by distorting things." [...]

There have also been reports that U.S. regulators are investigating possible manipulation of the ISDAfix rate, a benchmark used in interest-rate swaps.

"Uncertainty in these benchmark rates is a burden on the marketplace," Turbeville said. "If their legitimacy is undercut, that's a burden on the productive economy."