The dark and ‘smoke-filled’ chatroom that that could sink rogue forex traders

The mere fact that bank traders accepted invitations to join covert instant messaging platforms is a strong indication of their involvement in a rogue conspiracy to manipulate the rand/US dollar currency pair, the Competition Commission has argued.

The commission’s serially-delayed case against bank currency traders is heating up, with the watchdog saying there was a clear intention by traders to rig currency trades to boost profits.

Acting for the commission, advocate Tembeka Ngcukaitobi said the acceptance by bank traders to join instant messaging platforms, which he described as “smoke-filled darkrooms” was “an acceptance to a conspiracy.”

Ngcukaitobi was arguing before the Competition Tribunal on Wednesday. Hearings into the commission’s case of currency-rigging, which was referred to the tribunal in February 2017, began on Monday.

The case implicates more than 30 individuals linked to 23 banks, among them Standard Bank of SA, Investec Bank, Bank of America, Merrill Lynch International, BNP Paribas, JP Morgan Chase, HSBC Bank, Macquarie Bank, Barclays Capital, Standard New York Securities, Nomura International and Credit Suisse Group.

The commission found that from at least September 2007, traders from competing banks entered into a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades in relation to currency trading. In doing so, they allegedly used platforms such as the Reuters currency trading platform and the Bloomberg instant messaging system (chatroom), as well as telephone conversations and meetings, to coordinate their alleged collusive trading activities. 

“It’s clear what the general or overarching agreement was all about,”said Ngcukaitobi. “The Bloomberg chatroom simply provided a forum – it is a smoke-filled darkroom and when you [the traders] got in [the chatroom], you knew fully what you were getting yourself into.

“And when you stayed, you knew precisely what you were staying for because you knew the type of information that was [being] communicated. When you were inside, you participated in several activities in the chatroom.”

By merely being a participant in the chatroom, Ngcukaitobi said, bank traders accessed and shared sensitive information that is not in the public domain including customer currency orders and their personal information, successful trades and volumes, whether traders held long or short positions, and trading strategies.

“We had a group of traders involved in currency manipulation,” he said. “And each and every one of those traders, whether they sent one message or 20 messages, the fact is their membership on the platform itself violates section 4(1) b of the Competition Act, as they had access to competitively sensitive information which enabled them to decide their trading strategies.”

Section 4 prohibits the conduct arising out an agreement among various parties to fix prices or collude.

Bank objections

The merits of the case have not been heard as the tribunal is still hearing technical issues including exceptions/objections by banks to the charges. These objections include whether the commission had jurisdiction over foreign entities, the request for clarity of evidence and the lapse of the three-year period to bring charges.

Once these exceptions have been argued, the tribunal panel led by advocate Norman Manoim will decide whether the commission’s case should be heard by the tribunal, thrown out or referred back to the commission.

Banks have been scathing of the commission’s case, saying that it is relying on broad accusations that lack hard evidence. Wim Trengove SC, who is acting for Investec Bank, argued that the bank had no understanding of what the alleged general agreement to collude among traders – the nub of the commission’s case – refers to, or where and how it came into existence.

Alfred Cockrell SC, who spoke on behalf of HSBC Bank, Bank of America and Credit Suisse, supported Trengove’s views, saying that banks are confused as to whether the commission is referring to an overarching agreement or a series of agreements that contravene the Competition Act.

However, Ngcukaitobi said the commission’s case is clear. “There is enough on these facts to show that this [entering instant messaging chatrooms] was an arrangement between all participants. The mere manipulation of the currency is enough [to bring charges].”

The commission is pushing for a 10% fine on annual turnover against the banks or for them to settle with it – as in the case of Citibank, which paid an administrative penalty of R69.5 million in March 2017.