Singapore’s Banks In Rate Rigging Investigation

Singapore

A potential banking scandal focussed on Singapore is about to break after a probe by authorities found traders conspired to fix rates for the offshore foreign currency exchange (FX) market.

Traders allegedly communicated via an electronic messaging system asking for information about rates set by other firms.

There were direct requests for other traders to ‘fix rates low’ in the rates being submitted to a local banking association’s fixings on non-deliverable foreign exchange forwards (NDFs).

The move to fix rates would directly benefit the traders concerned.

Essentially, an NDF is a derivative which lets investors and companies to speculate or hedge on an emerging market currency because exchange controls make it harder for those outside Singapore to trade in the spot market directly.

Conspiracy theory

The resulting contracts are paid in Singapore dollars with no currency exchange to be factored in though the spot rates could be affected.

The NDF process is run by the Association of Banks in Singapore (ABS) with bank members submitting their spot prices for a range of currencies every day at 11am.

The ABS then calculates a settlement rate taken from the average in the submissions – the idea is that one bank cannot skew the market in their favour.

However, there are fears that when traders collude they can influence the ABS settlement rate.

News of the alleged manipulation comes on the heels of revelations that traders also manipulated the London interbank offered rate (Libor) which fixes the rates for borrowing on mortgages, loans and derivatives.

LIBOR scandal

Those revelations caused a worldwide banking scandal and led to calls for tighter regulation of the banking industry. Banks, including Barclays and the Royal Bank of Scotland, were fined millions.

The LIBOR scandal led to the Monetary Authority of Singapore (MAS) ordering  banks to review spot fixing process last year after regulators in the US and UK promised a crackdown on traders abusing the rates.

After findings issues with its foreign exchange market rates, the MAS has now widened its investigation and is looking at other benchmarks used by bankers and traders to see if they too have been manipulated.

The MAS has not commented so far on the allegations but it did issue a recent statement saying the MAS reminded banks of their obligation and that: “Banks must report any irregularities they uncover immediately and take the appropriate disciplinary action with staff involved.

“Our review is an ongoing process and it would be premature for anyone to speculate about what their outcome might be at this stage.”