Fifteen of the world's largest banks are under investigation on suspicion of rigging the Brazilian currency, antitrust watchdog Cade said on Thursday, the first such probe in one of the busiest foreign exchange markets globally.
In a document, Cade alleged that the banks colluded to influence benchmark currency rates in Brazil by aligning positions and pushing transactions in a way that deterred competitors from the market between 2007 and 2013, at least. Foreign exchange trading in Brazil is estimated at about $3 trillion a year, excluding swaps and derivative transactions.
The banks named in the Cade probe are Bank of America Merrill Lynch,Bank of Tokyo-Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse Group, Deutsche Bank, HSBC , JPMorgan Chase & Co, Morgan Stanley & Co , Nomura Holdings, Royal Bank of Canada, Royal Bank of Scotland Group, Standard Bank Group, Standard Chartered and UBS.
The Brazilian investigation comes weeks after six of the world's largest financial institutions agreed to pay $5.8 billion to the U.S. government to settle charges of currency rigging. The U.S. probe took more than five years and five of those banks, which are being probed by Cade, pleaded guilty.
Globally, currency trading is estimated at around $4.7 trillion a day and has been targeted in recent government probes in Europe, the United States and Japan. Those probes allege that banks prioritized the execution of their own currency trades at the expense of client orders, taking advantage of the fact that those deals often take place away from exchanges.
The Cade probe highlights the growing importance of international cooperation in efforts to root out different forms of market rigging, and sets a milestone for a country long characterized for having too lax law enforcement standards for white-collar crime.
"The probe will probably follow similar patterns to those that took place in larger financial hubs, with banks seeking a settlement with Cade instead of fighting the accusations in courts," said Luís André de Moura Azevedo, a capital markets law professor with Fundação Getulio Vargas in São Paulo.
At a news conference late on Thursday, Leonardo Frade, a Cade superintendent in charge of the probe, said that so far there were no signs that Brazilian banks participated in the scheme.
Bank of America, Barclays, Citigroup, Credit Suisse, UBS, Standard Bank, Royal Bank of Canada, Standard Chartered, and Royal Bank of Scotland declined to comment. Nomura, JPMorgan, Deutsche Bank, Standard Bank, Tokyo-Mitsubishi and HSBC did not have an immediate comment.
In the current probe, Cade said traders who described themselves as "The Cartel" or "The Mafia" used online chat rooms to fix their positions ahead of market trades. Another 30 individuals that might have participated in the scheme are also under investigation, the watchdog said.
At least one of the alleged participants is cooperating with the current investigation, Cade said. The document made available by Cade did not specify how much money the banks or the individuals cited in the investigation made with the scheme.
The Cade document said traders probably front-ran client orders and pushed through trades that affected the way benchmarks like Brazil's PTax and WM/Reuters rates were set. They might have also colluded to fix spreads on client trades, unveil spot and future trades that should have been kept confidential and even deal flow volume data, the document added.
Benchmarks like the PTax or the WM/Reuters are used by investment firms to value their assets on a day-to-day basis.