South Africa’s Competition Commission started an investigation into banks including Citigroup Inc. and JPMorgan Chase & Co. for allegedly rigging the foreign currency market, two years after a global probe into the practice began.
The antitrust agency will focus on currency trades involving the South African rand in spot, forward and futures contracts, it said in a statement Tuesday. The group of 11 named by the commission, which also includes BNP Paribas SA, Barclays Plc’s African operations and a unit of Standard Chartered Plc, may have colluded by using electronic messaging software to coordinate trades when quoting prices to customers, it said.
“It’s certainly not good news for the banks,” said Garth Mackenzie, founder of Johannesburg-based TradersCorner.co.za, an independent trader. “I can’t imagine the authorities would launch into this without a high chance of finding something.”
The probe follows investigations into the rigging of currency markets that began in the U.K. two years ago. British banks set aside more than $1.7 billion in the first quarter to cover the cost of settling such probes. South African banks have avoided scrutiny until now.
The South African Reserve Bank said in a separate statement Tuesday the alleged market rigging occurred outside the country.
Other entities named by the commission include BNP Paribas South Africa, Citigroup Global Markets (Pty) Ltd., JPMorgan South Africa, Standard New York Securities Inc., a unit of Standard Bank Group Ltd. and Investec Ltd.
“Investec will co-operate with the Competition Commission with respect to their investigation,” said Ursula Nobrega, a spokeswoman for the bank. “At this stage we do not have further information with respect to the nature or source of the investigation.”
Standard Chartered and Barclays Africa both said they will cooperate with the commission, while Standard Bank said it couldn’t comment because it hadn’t yet been notified of the probe. Kate Haywood, a spokeswoman for JPMorgan in London, declined to comment, as did a spokeswoman for BNP in Paris. Citigroup couldn’t immediately comment.
The traders allegedly directly or indirectly fixed prices in relation to bids, offers and bid-offer spreads in respect of spot, futures and forwards currency trades, the commission said.
“Conduct of this nature distorts the price of foreign exchange and artificially inflates the cost of trading in foreign currency paired with the South African rand,” Competition Commissioner Tembinkosi Bonakele said in the statement. “With this investigation we are sending a clear message that we will pursue cartels affecting South Africa wherever they take place.”
The Competition Commission is South Africa’s antitrust investigative and enforcement agency. Once it has probed what it thinks may be prohibited practices, it can impose penalties and make recommendations to the country’s Competition Tribunal, which then adjudicates. Companies facing fines can go to the Competition Appeal Court.
South Africa “has a high standard in financial market regulation, and this will bring additional confidence,” Mackenzie of TradersCorner said of the investigation.
The rand has dropped 43% against the dollar in the past three years. The rand accounted for 1.1% of global foreign exchange market turnover in 2013, the 18th most active currency, according to a Bank for International Settlements survey released in September that year. Daily trading volumes amounted to $5.3 trillion in April 2013, compared with $4 trillion three years earlier, it said.
After the currency slumped 37% against the dollar in 2001, South Africa began what was known as the rand commission to investigate any irregular trades.
While none were found, investigators said that transactions arranged by Deutsche Bank AG led to an outflow of money from South Africa. Deutsche Bank in May 2002 agreed to boost South Africanforeign currency reserves by R800 million as part of an accord that ended the investigation.
“The reality of the situation is the forex market in South Africa is controlled by the big banks,” said Patrick Mathidi is the head of core strategies at Momentum Asset Management in Johannesburg. Many organisations targeted abroad by such probes have settled them, because they “can take a lot of time and effort and they can be disruptive to the operations of the banks,” he said.