An entirely new global financial scandal is swirling in the world of arbitrage. This follows on the heels of recent revelations of commodity market manipulation by JP Morgan and other global financial firms, uncovered during the ongoing LIBOR interest rate manipulation investigation. The commodities suspected to have been manipulated represent the full spectrum from petroleum futures, to copper, aluminum and grain markets. Now Swiss investigators have opened a formal investigation into foreign currency trading (known as “arbitrage”) by Swiss banks, which has spread to banks in other major financial centers around the globe.
It should be noted that the market price for Alberta bitumen, known as Western Canada Select, or WCS, on global oil markets, is not immune from this, and could also be affected by the investigations into global petroleum and currency market price fixing. Add to that the current jitters on global markets over the U.S. government shutdown and impending debt ceiling default, and we have the potential makings of a catastrophe.
Readers of this blog will also note my very recent post from the Wall Street Journal, on the dire predictions coming from highly respected investment strategist, Jeremy Grantham. Read more: Jerry Grantham Warns of Climate Change, Food Supplies and Natural Resources. One could argue that the reason all of this global market manipulation may be occurring is precisely because the manipulators see an opportunity to exploit Grantham’s forecast. Also it is important to note the connections with UBS, which has already admitted guilt in the LIBOR scandal, and former U.S. Senate Banking Committee Chairman, Phil Gramm. Read more: UBS, LIBOR and Phil Gramm.
Swiss Investigate Banks Over Currency Trading
Reblogged from the New York Times
By JACK EWING
Published: October 4, 2013
FRANKFURT — The banking industry, already troubled by official inquiries that have badly damaged its reputation, got hit by another on Friday. Swiss authorities said they were investigating whether financial institutions had colluded to manipulate foreign exchange markets.
In a terse statement, the Swiss financial industry regulator, known as Finma, said it was investigating several Swiss banks but did not name them. The agency also said it was cooperating with authorities in other countries and that banks outside the country were also suspected. A spokesman for Finma declined to comment further.
Spokesmen for Switzerland’s two largest banks, UBS and Credit Suisse, declined to comment. UBS is fourth among global banks in currency trading, according to Euromoney. Credit Suisse is a relatively minor player, with 3.7 percent of the currency market vs. 10.1 percent for U.B.S.
The largest currency trader globally is Deutsche Bank in Frankfurt, with 15.2 percent of the market. A spokesman for Deutsche Bank also declined to comment.
In earlier inquiries, more than a dozen global banks have been accused or suspected of manipulating the London interbank offered rate, or Libor, a benchmark used to set interest rates on trillions of dollars of mortgages and other loans. In December, UBS agreed to pay approximately 1.4 billion Swiss francs ($1.6 billion) as part of a settlement with American, British and Swiss authorities in connection with the Libor inquiry.
Swiss authorities did not give any indication Friday of how much money might have been involved in any manipulation, but the potential is enormous. Currencies worth $5.3 trillion are traded every day, according to the Bank for International Settlements in Basel, Switzerland.
“Finma is currently conducting investigations into several Swiss financial institutions in connection with possible manipulation of foreign exchange markets,” the regulator said in a statement. “Finma is coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.”
A spokesman for the German bank regulator, known as Bafin, said he could not comment on whether German authorities were involved in the investigation.
In June, Britain’s financial regulator said it was examining claims that traders at large banks manipulated some foreign exchange benchmark rates and that it might start an official investigation. It was not immediately clear if that preliminary inquiry was related to the Swiss investigation.
The Financial Conduct Authority said in June that it was talking to individuals in the foreign exchange market about claims that traders rigged the so-called WM/Reuters rates. On Friday, the F.C.A. reiterated that it was in discussions with all of the relevant parties, but would not comment further.
Because the foreign exchange market is not regulated, any F.C.A. inquiry would focus on individuals authorized by the regulator to act in the market and whether companies did enough to prevent market abuse.
Chad Bray and Julia Werdigier contributed reporting from London.