UK opens formal probe as FX investigation goes global


* Hong Kong probe signals investigation has reached Asia

* UK regulators say formally opening investigation

* Swiss regulator has said multiple banks potentiallyimplicated

By Rachel Armstrong and Jamie McGeever

HONG KONG/LONDON, Oct 16 (Reuters) - The global probe intosuspected price manipulation in the currency market intensifiedon Wednesday, with Hong Kong becoming the first authority inAsia to look into the allegations and Britain opening a formalinvestigation.

In echoes of the global probe into interest rate rigging, authorities are examining electronic messages between currencytraders to see whether they colluded with counterparts.

Authorities in the United States, Europe and Asia are nowlooking into suspected price manipulation in the $5.3trillion-a-day market.

Several media reports have suggested that tradersmanipulated the fixings, or snapshots of where currencies aretrading at a particular time in the market, which are used toprice trillions of dollars worth of investments.

Regulators and investors are looking carefully at theintegrity of financial benchmarks after a global investigationinto interest rate rigging led to fines for four financial firmsincluding Switzerland's largest bank UBS.

Switzerland and the United States are already makinginquiries about whether the currency traders used advanceknowledge of client orders and each other's trading positions torig the foreign exchange fixings in their favour.

The Hong Kong Monetary Authority said on Wednesday that itwas talking to foreign regulators and banks about the currencymarket allegations.

"The Hong Kong Monetary Authority is aware of theallegations. We have been in communications with the relevantoverseas regulators and (are) following up with individualbanks," the de facto central bank said in a statement.

For its part, Britain's Financial Conduct Authority said ithad progressed from asking banks for information relating to FXtrading to opening a formal probe and is working with agenciesoverseas.

"Our investigations are at an early stage and it will besome time before we conclude whether there has been anymisconduct which will lead to enforcement action," an FCAspokesman said.

Switzerland's financial markets regulator FINMA said earlierthis month that it was investigating several Swiss banks. FINMAdid not name the banks under scrutiny but said multiple banksaround the world were potentially implicated.

The chairman of Credit Suisse, Switzerland'ssecond-largest bank, told a local newspaper this month that ithad not found any evidence of malpractice in the FX marketfollowing inquiries from regulators.

Investment banks, including Royal Bank of Scotland and Deutsche Bank, have handed over instant messagesand emails to Britain's Financial Conduct Authority (FCA) overthe summer as part of its probe, banking sources said.

Last week, a source familiar with the matter said the UnitedStates was also involved in the probe.

Authorities in the United States and Britain, RBS andDeutsche Bank have all declined to comment about the probes.


Stung by revelations of lax oversight and controls in theLibor interest rate rigging scandal, banks are pro-activelyhanding over information from their FX desks to watchdogs.

"It's a two-way flow of information," said a source at aU.S. bank.

A source familiar with the British inquiry said the tone ofmessages between foreign exchange traders was similar toexchanges between Libor derivatives traders, whose arrogance asthey manipulated benchmark interest rates stunned regulators,politicians and the public in 2012.

Media reports this week suggest the investigations centre ona group of senior dealers at big banks who communicated viaelectronic chatrooms. The group was known by names such as "TheCartel" and "The Bandits' Club".

The most popular benchmark is the WM/Reuters "fix", which isset at 4 pm London time, using actual trades and order ratesfrom Reuters and rivals such as EBS during a 1 minute "fix"period. WM, a unit of State Street, calculates the benchmarkusing the median of the trades and the orders.

Bloomberg News reported in June that traders at some banksmay have pooled information about their positions throughinstant messages and sought to manipulate the WM/Reuters ratesby pushing through trades before and during the 60-secondwindows when the benchmarks are set.

The WM/Reuters FX rates are used by investors andcorporations looking for a rate to price their portfolios andcurrency holdings. Most of the main equity and bond indexcompilers also use the rates in their calculations.

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