ASIC just explained how FX traders at major Aussie banks tried to rig trades over years

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Westpac and the ANZ Bank have agreed to pay $3 million each after the corporate regulator ASIC investigated them for foreign exchange market manipulation.

Both made enforceable undertakings in relation to their wholesale foreign exchange businesses.

The ASIC says both banks failed to ensure their systems and controls were adequate to address risks relating to instances of inappropriate conduct between January 2008 to June 2013.

The commission listed a string of troublesome behaviour among traders at both of the banks, including sharing confidential client information about orders — sometimes using code words — behaviour which would potentially allow a trader to benefit as the market moved following the execution of the client order.

ASIC explained that, in regards to Westpac:

  • employees disclosed confidential details of pending client orders to external traders in the spot FX market, including on a few occasions identification of the client by use of code names;
  • employees inappropriately received and/or disclosed confidential information about Westpac’s or another institution’s orders in the course of fix order management and execution;
  • an employee altered a proprietary position prior to the fix upon receipt of confidential and potentially material information in relation to other institutional fix orders; and
  • on at least one occasion, a Westpac employee inappropriately disclosed confidential Westpac fix order information to an external party to inform their joint personal account trading strategy.

The problems at ANZ included that, on a number of occasionas, “ANZ employees disclosed specific confidential details of pending customer orders to external third parties including the identification of the customer through the use of code names”.

There was also an incident in which a former ANZ spot FX trader shared “confidential and potentially material information about other institutions’ customer flow or proprietary positions, including information concerning likely directional flow” at the London fix, a crucial pivot point for FX pricing on global markets.

“We accept that during this period aspects of our supervision and monitoring of the Spot FX business were not good enough,” said ANZ Chief Risk Officer Nigel Williams. “We have taken responsibility and we apologise.”

Chief executive of Westpac Institutional Bank, Lyn Cobley, said: “We continue to enhance our policies and controls across the Spot FX business and we look forward to continuing this process as we fulfil our commitments set out in the enforceable undertaking.”

It’s unclear if the activity resulted in large gains, either for the traders or the banks, although advance knowledge of market positioning can clearly be advantageous.

ASIC’s FX investigation has previously seen enforceable undertakings from the NAB and the Commonwealth Bank of Australia. The banks also made voluntary contributions of $2.5 million each to fund independent financial literacy projects in Australia.

ASIC commissioner Cathie Armour says the foreign exchange market is systemically important and depends on all participants acting with integrity and fairness.

Both Westpac and ANZ now have to report to ASIC each year on their systems and controls in their FX business.

Westpac will also make a community benefit payment of $3 million to support the financial capability of vulnerable people including women experiencing family violence, the elderly and youth at risk, as will ANZ though their payment of $3 million will go to Financial Literacy Australia.

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