June 12, 2013 / 3:44 PM / 6 years ago

UK regulator looks into report of foreign exchange rate manipulation

LONDON (Reuters) - Britain’s financial watchdog is looking into a report that traders manipulated benchmark foreign exchange rates that are widely used by companies and funds.

Detail showing a commercial U.S. Dollar rate against British Sterling is displayed on a foreign currency exchange board in central London December 1, 2006. REUTERS/Toby Melville

The discussions come at a time of increased global scrutiny of financial benchmarks after the discovery that some other financial benchmarks, such as the Libor benchmark for interest rates, had been rigged.

Citing five dealers with knowledge of the practice, Bloomberg News said traders at some of the world’s biggest banks had manipulated foreign exchange rates. It did not identify the banks.

“The FCA (Financial Conduct Authority) is aware of these allegations and has been speaking to the relevant parties,” a spokesman for Britain’s financial services regulator said. He declined further comment.

He would not confirm any aspect of Bloomberg’s report including that one of Europe’s largest money managers had complained about possible manipulation to British regulators within the past 12 months.

The spokesman also would not comment on whether any law may have been broken, or whether a formal investigation had been started.

Trades on the near $5 trillion a day forex market are not subject to the same degree of regulation or oversight as instruments listed on exchanges.

The Bloomberg report said some dealers had been front-running client orders - profiting from knowledge of trades in the pipeline - by pushing through trades before and during the 60-second window when WM/Reuters benchmark rates are set.

Rates are calculated hourly through most of the trading day, with closing rates set at 4 p.m. in London.

The benchmark rates for 21 of the world’s most heavily traded currencies are calculated based on deals which take place during the window and, if need be, on the prices at which dealers offer to buy or sell currency rather than actual trades.

Similar methods are used to set WM/Reuters benchmark rates for 160 currencies. The benchmarks are used by companies, funds and index compilers for a wide range of valuations.

World Markets Co, a unit of Boston-based State Street Corp. (STT.N), is the administrator for the WM/Reuters service.

Data from Thomson Reuters (TRI.TO) systems are a primary source of the exchange rates used to calculate the benchmarks. World Markets applies its methodology and calculates the benchmark.

“The process for capturing this information and calculating the spot fixings is automated and anonymous and the rates are monitored for quality and accuracy,” a spokeswoman for World Markets said.

Thomson Reuters said it was directing queries to State Street.

Reporting by Steve Slater, Huw Jones and Swaha Pattanaik; Editing by Matthew Tostevin

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