Rigged Bid
Deutsche Bank and the Hongkong and Shanghai Banking Corp. (HSBC) will be fined for rigging foreign exchange swap bids. The Fair Trade Commission announced on March 15 that it issued a corrective order to the two foreign banks which agreed to win bidding for foreign exchange swaps by turns in advance and fined them 59 million won.
This was the first time for the Fair Trade Commission to uncover price fixing in bidding for foreign exchange derivatives. The foreign exchange swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates.
Korean exporting companies usually use this system for hedges against foreign exchange risks that take place when foreign exchange rates fluctuate wildly.
According to the Fair Trade Commission, salespeople at the Seoul branches of Deutsche Bank and HSBC agreed to avoid price competitions and win bids alternately in the bidding process for a Korean company’s foreign exchange swap trades which will roll over in the future. They did via a messenger shortly after the completion of the Korean company’s two-month maturity foreign exchange swap bid in March 2011.
The two banks secretly supported each other by rigging prices by turns in four foreign exchange swap bids until December of the same year.
Deutsche Bank and HSBC were fined 13 million won and 46 million won, respectively. The amounts of the fines were based on swap points which equal prices in foreign exchange swap trades.
“We expect this measure to decrease price fixing in the foreign exchange derivative market,” said one official at the Fair Trade Commission. “The Fair Trade Commission will continue to supervise the foreign exchange market and related banks.”