Banks continue to hog the limelight for all the wrong reasons. At present, their electronic foreign exchange ("FX") trade is under scanner for alleged manipulation.
As per Reuters, the New York's Department of Financial Services ("NYDFS") has intensified their probe on this matter. Several traders and executives at Credit Suisse Group AG CS , Barclays PLC BCS and Deutsche Bank AG DB , among others, have been questioned over alleged rigging of electronic FX trade.
The NYDFS is probing whether traders at Barclays and Deutsche Bank have been using algorithms on their trading platforms to rig FX rates since last year. Further, the investigators are examining whether banks are manipulating trades during the time period between an offer is floated and accepted.
Apart from the above-mentioned banks, the NYDFS has issued subpoenas to BNP Paribas SA BNPQY , The Goldman Sachs Group, Inc. GS and Societe Generale. Moreover, the Department of Justice is running a separate probe over the same matter.
Over the past one year, banks have faced penalties for manipulating FX rates in spot trading markets. Major global banks including JPMorgan Chase & Co. JPM , HSBC Holdings plc HSBC , Barclays, Citigroup Inc. C and UBS Group AG UBS have paid more than $10 billion to authorities in the U.S and Europe for their inability to stop traders from rigging FX markets.
Whatever the outcome of the afore-mentioned probe, we believe banks will continue to face heightened legal overhang. In case the probe nails banks for alleged malpractices in electronic FX trading, increased legal expenses will surely hurt their financials. Till then, let's wait and watch.