LONDON Fallout from global investigations into possible manipulation of the $5.3 trillion-a-day forex market spread on Wednesday, as Royal Bank of Scotland (RBS) (RBS.L) said it had sought to reassure clients about rates they were offered while Barclays (BARC.L) said it was cooperating with regulators.
Benchmark foreign exchange rates, often referred to as fixes, are a cornerstone of global financial markets, used to price trillions of dollars worth of investments and deals and relied upon by companies, investors and central banks.
Regulators in the United States, Asia and Europe are investigating possible manipulation of these benchmarks and RBS confirmed on Wednesday it had emailed clients last week to tell them it was reviewing how it trades foreign exchange in the minutes before rates are set.
"We are currently considering processes around the benchmark service. The email does not reflect final policy and we are clarifying this with our clients," RBS said.
Barclays, meanwhile, said it was reviewing records from its FX trading business going back several years as part of the international probe.
UBS UBSN.VX and Deutsche (DBKGn.DE) also said this week they were cooperating with authorities.
According to a Bloomberg report, RBS had emailed customers to reassure them that RBS traders would not share details of their FX orders with traders at other banks and would not use knowledge of such orders to make bets for themselves.
In echoes of the global probe into the manipulation of benchmark interest rates, authorities are investigating whether traders at investment banks colluded with counterparts at other banks to try and rig FX rates, tipping each other off about their positions to try and influence the rate set.
RBS is one of a number of banks that has handed over FX traders' electronic chats to Britain's financial regulator, a source familiar with the matter said earlier this month.
Banks are cooperating with the FX probe after a years-long investigation into manipulation of benchmark interest rates which has so far led to five institutions, including RBS, being fined around $4 billion and seven individuals criminally charged.
As part of their interest-rate rigging settlements, banks including Barclays, UBS, RBS and Rabobank RABO.UL have agreed to turn over all information that the U.S. Justice Department asks of them for at least two years, enabling Washington to probe the setting of benchmark FX rates.
Deutsche Bank, Citigroup (C.N), UBS and Barclays are the four biggest players in the global FX market with a combined share of over 50 percent.
UBS, Barclays and Deutsche declined to comment on whether they were reviewing FX trading practices. Citigroup was not immediately available to comment.
The key foreign exchange benchmark rates, WM/Reuters, are compiled using data from Thomson Reuters (TRI.TO) and other providers, and calculated by WM, a unit of State Street (STT.N).
Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.
The WM/Reuters rate set at 4 pm London time is considered the benchmark by many companies and investors because more than 40 percent of daily global FX trading is done in London. It is the nearest thing to a closing price in a 24-hour, self-regulated market.
To calculate the benchmark, WM takes the median of actual trades and order rates during a one minute "fix" period. The rates are set hourly, or every 30 minutes for active currencies, and cover some 160 currencies.
Regulators are investigating whether traders used advance knowledge of customer orders to make money for their banks' own accounts, an illegal practice known as "front-running", and pushed through trades around the 1 minute window when the benchmarks are set to try and influence them.
While RBS sought to reassure clients that it would not be sharing information about flows related to the fix, it said it would hedge its own position up to 15 minutes before the benchmark is set to protect itself against market movements.
(Additional reporting by Katharina Bart in Zurich and Anirban Nag in London; Writing by Carmel Crimmins; Editing by David Holmes)