Fix investigation switches focus to real-money clients

By:
Eva Szalay
Published on:

Asset managers are traditionally the biggest users of the foreign exchange daily fix. As Euromoney Market Data shows, the top banks in this area are not quite the same as the leading trading houses for overall market share.

Investigations into potential price manipulation in foreign exchange markets could see more banks exposed to regulatory inquiries based on their market share in the real-money community, where global custodian State Street is the eighth-largest player.

State Street has yet to comment on whether it is part of the group of 15 global banks that regulators have asked for information related to currency trading, and it is not ranked amongst the 10 banks with the biggest overall market share.

A number of regulators, including the UK’s Financial Conduct Authority and Swiss regulator Finma, are looking into foreign exchange trading practices, a review that is thought to concentrate mainly on the 4pm WM/Reuters fix that takes place in the $2 trillion-a-day spot market.

The fix is mainly used by asset managers – the real-money clients – a segment in which State Street is a leading player, handling 4.96% of spot flows from this client group, according to the 2013 Euromoney FX Survey, which the industry uses as its benchmark.

Much attention has focused on the biggest banks by overall market share in FX trading, where the top 10 houses are (in order) Deutsche Bank, Citi, Barclays, UBS, HSBC, JPMorgan, Royal Bank of Scotland, Credit Suisse, Morgan Stanley and Bank of America Merrill Lynch.

However, the rankings are somewhat different when based on client flows from the real-money community. Goldman Sachs and State Street are amongst the 10 institutions with the largest market share in the spot market.

According to Euromoney’s calculations, Citi is the biggest player with 13.05% market share in spot and forward flows originating from the real-money segment, while Deutsche Bank, the leader of the overall volumes table, only comes fourth with 8.81% of flows. Goldman Sachs is ranked 10th with 4% market share.

In 2013, six of the top-10 banks gained further ground in the real-money segment compared with the previous year, while four, including State Street, saw their volumes slip.

Despite the large proportion of relevant flows handled, State Street is yet to confirm whether it is one of the 15 global banks that regulators have requested information from or whether it’s conducting an internal review. State Street did not return calls for this article.

According to press reports, at least 12 people have been put on leave or suspended across a number of leading banks due to internal reviews relating to the investigation. So far, Barclays, Deutsche Bank, Citi, Morgan Stanley, UBS, RBS, JPMorgan and Goldman Sachs have said they are part of the group of banks regulators have asked for information from.

Credit Suisse has also confirmed it is part of the review, but the chairman of the Swiss banking group said the bank has not found any evidence of wrongdoing during its internal investigation.

At this stage, no allegations of wrongdoing have been proven and no action has been taken by regulators against any bank or trader apart from a request for information for the purposes of the review.