October 9, 2013 / 11:11 AM / in 4 years

UPDATE 2-Swiss finance ministry retracts comments on forex market rigging

* Swiss antitrust, market regulators already probing forex

* Foreign exchange market one of the least regulated markets

* Regulators already investigating other benchmarks

* RBS said to have handed instant messages to Britain’s regulator

ZURICH, Oct 9 (Reuters) - Swiss finance minister Eveline Widmer-Schlumpf on Wednesday retracted an assertion that she knew the foreign exchange market had been manipulated.

Her ministry said that it was aware only of a probe into possible manipulation.

At a government press conference earlier on Wednesday, Widmer-Schlumpf had said: “It’s a fact that foreign exchange manipulation was committed.”

“It is unclear to what extent and which institutions are affected. I think it’s important that we wait until we have the results (of the investigation),” she added.

Later the spokesman for her finance ministry said in a statement: “Federal Councillor Widmer-Schlumpf did say this, but did not mean it that way.”

Instead, the finance minister had meant to say she was aware that possible manipulation of the foreign exchange market is being investigated, spokesman Roland Meier clarified.

Switzerland’s competition commission WEKO and its financial markets regulator FINMA said last week that they had opened investigations into potential manipulation of foreign exchange markets by banks. They declined to name the banks under investigation.

Regulators and investors have grown increasingly concerned about the integrity of financial benchmarks in the wake of the Libor interest rate rigging scandal.

Scrutiny of the $5 trillion-a-day currency market has broadened in recent days, with authorities in Switzerland and Britain looking into whether traders at banks sought to manipulate benchmark foreign exchange rates.

The market is the biggest in the financial system and one of the least regulated, with most trading taking place away from exchanges. Companies need foreign exchange benchmark rates to value currency holdings at a uniform rate.

A FINMA spokesman declined to comment on Wednesday. UBS and the Swiss National Bank also declined to comment.

Last week FINMA said it is working with authorities in other countries and that multiple banks worldwide were potentially implicated.

Royal Bank of Scotland (RBS) has handed instant messages sent by a former currency trader to counterparts at other banks to Britain’s financial regulator as part of its probe into the foreign exchange market, a source familiar with the matter said.

Britain’s Financial Conduct Authority (FCA) said in June it was examining allegations banks had manipulated foreign exchange benchmarks by trading ahead of their own customers’ orders, a practice known in the markets as “front running”.

A report by Bloomberg in June said traders at some of the world’s biggest banks had used their advance knowledge of customer orders to push through trades before and during the 60-second window when the WM/Reuters benchmark rates are set.

The WM/Reuters benchmark rates cover 160 currencies. Data from Thomson Reuters systems are a primary source of the exchange rates used to calculate the benchmarks. World Markets, a unit of Boston-based State Street Corp., applies its methodology and calculates the benchmark.

The Bloomberg report said traders had colluded with counterparts at other banks to boost their chances of moving the rates.

The foreign exchange benchmark rates, WM/Reuters, are calculated using actual trades hourly through most of the trading day, with closing rates “fixed” at 4 p.m. in London.

Many banks provide a service to their customers where they guarantee to trade at the WM/Reuters rates and corporations use the rate to value currency holdings since auditors accept the WM/Reuters rates as independently fixed.

The G20’s regulatory task force, the Financial Stability Board, has set up its own working group on interest rate benchmarks and reports back next year. It will look at how transition to a more market-based interest rate benchmark could work and what to do when markets dry up.

Regulators across the globe are already investigating industry benchmarks for establishing the price of crude oil, the interest rate swaps market and inter-bank lending rate Libor.

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