€1 Billion Fines for Foreign Exchange Cartels

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Three Way Banana Split. Essex Express and the Semi-Grumpy Old men.

No I’m not having a breakdown, these are the names of the chat rooms used by the cartels that have been found guilty of anti-competitive activity between 2007 and 2013, involving a bunch of major currencies.

We have Barclays, RBS, Citigroup and JPMorgan that were the four banks involved in the Banana Split Cartel. They were fined €811m.

Then we have Barclays and RBS once again, along with MUFG, which were all involved in the Essex Express. They were fined €258m.

UBS got away without any fines since they revealed what was happening.

RBS and Barclays, who were amongst the main culprits, were already anticipating this and claim the fines are already covered by provisions that were set aside.

These aren’t the only fines relating to this, there were also fines for currency market manipulation in 2014 by UK, US and Swiss authorities.

So what actually happened?

The traders would exchange information that would allow them to “make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when”.

The information included outstanding customer orders, spreads and prices related to specific transactions, the open risk positions they had in various currencies and details of other current or planned trading activities.

They would also use this information to coordinate activities, such as something they termed ‘standing down’. This meant other traders would hold off from trading to avoid disrupting the trades of another member of the chatroom.

These cartels were formed based on the personal relationships the traders had. For example, the Essex Express chat room was made up of a group of traders that all lived in Essex and met on the train. They went on to form the chat room on the back of their personal relationship and work credentials.

Ultimately, these fines are still the hangover from the scandal that was uncovered in 2013. The European Commission has made it clear that these fines are showing their motive which is to rid the markets of this sort of foul play.

Big players in the markets like banks clearly have a lot of information and can easily exchange it with other banks to get unfair advantages. These fines will hopefully put traders off from getting involved in the future, although the individual cases against the traders haven’t been so successful.

There are likely to be a lot of lawsuits coming up from other institutions against these banks. Considering the volume being traded in these markets, the lawsuits could be for very hefty amounts.

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