Big banks may face a flood of lawsuits for 4 pm FX fix manipulation

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After reporting its Q3 interim management statement, HSBC joins the ranks of alleged FX manipulators.

forex manipulationIn a fresh batch of events, it seems that major bank troubles related to the 4pm fix manipulation investigation are just about to start. As we have reported during the past couple of weeks, major banks around the globe are being investigated by global regulators as to how they conduct trading activities surrounding the 4 pm London fixing. With HSBC (LON:HSBA) unsurprisingly joining the party of currency rate manipulation probe yesterday, some legal worries for the major banks’ coffers are getting traction.

After last week Fannie Mae filed a lawsuit regarding the libor rate manipulation scheme against 9 banks, a new set of trials is very likely to start, which will focus on London 4pm fix forex rates rigging. Following last week's key traders suspensions, in a brand new trial, Massachusetts based benefit fund A Haverhill is suing 7 major banks - Barclays PLC ( LON:BARC ), Citigroup Inc. ( NYSE:C ), Credit Suisse Group AG ( NYSE:CS ), Deutsche Bank AG ( NYSE:DB ), JPMorgan Chase & Co. ( NYSE:JPM ), Royal Bank of Scotland Plc ( LON:RBS ) and UBS AG ( NYSE:UBS ).

Since the foreign exchange market is the most liquid market in the world, it is still difficult to comprehend as to how exactly has this scheme been conducted. Perhaps it’s interesting to note, that at this point in time no misconduct has been confirmed by regulatory authorities. Is it too early for lawsuits and conclusions?

As the forex fixes are used to calculate the value of a substantial set of financial assets and contracts, the suspension of key traders last week is apparently a fair enough reason for A Haverhill to file a lawsuit.

As history has demonstrated, especially over the past several years, when big incentives are involved, people tend to forget their rational mindset and indulge in illegal activities on a massive scale (who does not remember Libor?). There is no doubt that the industry will suffer, as regulators will be torn apart by the public questioning them how the scheme did skip their monitoring efforts.

From a foreign exchange business point of view, this means that additional transparency will be required and future regulatory reforms are not to be ruled out. The sheer amount of lawsuits that can surface from this investigation is hard to even imagine. We will keep you posted on the topic as the importance of this issue grows every single day.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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