By: Greg Farrell
December 11, 2014
New York regulators have found evidence that Barclays Plc (BARC) and Deutsche Bank AG (DBK) may have used algorithms on their trading platforms to manipulate foreign-exchange rates, a person with knowledge of the investigation said.
The practice suggests there may be a systemic problem involving automated tools that goes beyond individuals colluding to rig currency benchmarks and take advantage of less sophisticated clients.
The algorithms’ use is being scrutinized by the New York Department of Financial Services, said the person. The investigators are looking into the practice at each bank and it isn’t clear if there’s a link between the two, according to the person, who asked not to be named because the matter isn’t public. The algorithms were embedded in Barclays’s BARX trading platform and Deutsche Bank’s Autobahn system, according to the person.
The two services provide electronic marketplaces for the banks’ customers to trade currencies. Rather than directly matching one client’s buy order with another’s request to sell, the systems aggregate all requests from the banks’ clients to create prices that are displayed to customers. The banks profit from the spread or the difference in the price at which currency is sold and bought.
Autobahn, which is offered to Deutsche Bank’s companies and institutional investors, was ranked top in a market-share survey by Euromoney magazine earlier this year. BARX allows customers to trade more than 80 currencies, according to the London-based bank’s website.
Barclays was up 0.2 percent at 238.10 pence at 10:48 a.m. in London trading while Deutsche Bank was up 1.3 percent to 25.68 euros in Frankfurt.
Deutsche Bank and Barclays weren’t among the six firms that agreed to pay $4.3 billion to U.S., U.K. and Swiss authorities last month in the first settlements in the global probe. London-based Barclays dropped out of negotiations on the eve of the announcements after DFS Superintendent Benjamin Lawsky balked, viewing the penalties as too lenient, people with knowledge of the talks said at the time.
Lawsky, who is investigating about a dozen banks, has ordered a monitor to be installed at Deutsche Bank and already has one in place at Barclays. Renee Calabro, a Deutsche Bank spokeswoman, declined to comment, pointing to an earlier statement on the firm’s cooperation with the probes.
Caitlin Ferrell, a spokeswoman for Lawsky’s office, declined to comment, as did Mark Lane, a spokesman for Barclays.
Royal Bank of Scotland Group Plc, HSBC Holdings Plc (HSBA), Citigroup Inc. (C), JPMorgan Chase & Co., UBS AG and Bank of America Corp. were part of the Nov. 14 settlements with authorities including the U.K. Financial Conduct Authority, the U.S. Commodity Futures Trading Commission, Office of Comptroller of the Currency and the Swiss Financial Market Supervisory Authority. Criminal and antitrust authorities are continuing to investigate practices in the foreign-exchange market.
When the settlements were announced, the FCA said it ordered about 30 other banks, including Deutsche Bank, to overhaul their practices. The FCA isn’t planning to fine those firms.
Citigroup, Deutsche Bank, Barclays and UBS are the top four currency dealers, according to Euromoney Institutional Investor Plc.
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