European Commission fines five banks €1B over foreign exchange cartel

Among the banks facing fines are Barclays, Citigroup, JPMorgan, The Royal Bank of Scotland, and MUFG.

According to the European Commission, these banks took part in two cartels in the Spot Foreign Exchange market for 11 currencies: Euro; British Pound; Japanese Yen; Swiss Franc; U.S., Canadian, New Zealand, and Australian Dollars; and Danish, Swedish, and Norwegian crowns.

Specifically, the Commission’s investigation revealed that some individual traders in charge of Forex spot trading of these currencies on behalf of the relevant banks “exchanged sensitive information and trading plans, and occasionally coordinated their trading strategies through various online professional chatrooms.”

The commercially sensitive information exchanged in these chatrooms related to:

• Outstanding customers’ orders (i.e. the amount that a client wanted to exchange and the specific currencies involved, as well as indications on which client was involved in a transaction);
• Bid-ask spreads (i.e. prices) applicable to specific transactions;
• Their open risk positions (the currency they needed to sell or buy to convert their portfolios into their bank’s currency); and
• Other details of current or planned trading activities.

“The information exchanges, following the tacit understanding reached by the participating traders, enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when,” the Commission said. “Occasionally, these information exchanges also allowed the traders to identify opportunities for coordination—for example through a practice called ‘standing down,’ whereby some traders would temporarily refrain from trading activity to avoid interfering with another trader within the chatroom.”

Most of the traders participating in the chatrooms knew each other on a personal basis, the Commission said. For example, one chatroom was called Essex Express ‘n the Jimmy because all the traders but “James” lived in Essex and met on a train to London. Some of the traders created the chatrooms and then invited one another to join, based on their trading activities and personal affinities, creating closed circles of trust.

The traders, who were direct competitors, typically logged in to multilateral chatrooms on Bloomberg terminals for the whole working day and had extensive conversations about a variety of subjects, including recurring updates on their trading activities.

The Commission’s investigation revealed the existence of two separate infringements concerning foreign exchange spot trading:

The Three Way Banana Split infringement encompasses communications in three different, consecutive chatrooms (“Three way banana split/Two and a half men/Only Marge”) among traders from UBS, Barclays, RBS, Citigroup, and JPMorgan. The infringement started on 18 December 2007 and ended on 31 January 2013.

The Essex Express infringement encompasses communications in two chatrooms (“Essex Express ’n the Jimmy” and “Semi Grumpy Old Men”) among traders from UBS, Barclays, RBS, and MUFG (formerly Bank of Tokyo-Mitsubishi). The infringement started on 14 December 2009 and ended on 31 July 2012.

Fines imposed

The first settlement (concerning the so-called “Forex - Three Way Banana Split” cartel) imposes a total fine of €811.2 million (approximately U.S. $907 million) on Barclays, The Royal Bank of Scotland (RBS), Citigroup, and JPMorgan. The second settlement (concerning the so-called “Forex - Essex Express” cartel) imposes a total fine of €257.68 million (approximately U.S. $288 million) on Barclays, RBS, and MUFG Bank.

Citigroup was hit hardest with a €310.8 million (approximately U.S. $347.46 million) penalty for having participated in the scheme the longest, followed by a fine of €249.2 million (approximately U.S. $279 million) against RBS and €228.8 million (approximately U.S. $256 million) against JPMorgan. Barclays will pay a total of €210.3 million (approximately U.S. $235 million), and MUFG must pay nearly €70 million (approximately U.S. $78 million).

“[T]hese cartel decisions send a clear message that the Commission will not tolerate collusive behaviour in any sector of the financial markets,” Commissioner Margrethe Vestager, in charge of competition policy, said in a statement. “The behaviour of these banks undermined the integrity of the sector at the expense of the European economy and consumers.”

UBS was not fined for revealing the cartels to the Commission.