27/02/2017 21:59 SAST | Updated 27/02/2017 22:20 SAST

Ferial Haffajee Explains Everything You Need To Know About The Banking Collusion Scandal

Ferial Haffajee sets out what you need to know from the investigation into the collusion in the fixing of rand trades.


Wolf of Wall Street, Mzansi style.

The Competition Commission's investigation and referral to the Competition Tribunal into price fixing and collusion in rand trading reads like a movie script. Traders operating in the US and in South Africa played fast and loose with the rand, setting prices and fixing trades with impunity and with a certain cavalier attitude toward emerging markets which turn their currencies into playthings and the path to profits and bonuses.

Across the world, the antics of traders, which used to be treated with a nod and a wink, is now greeted with fury. So it is in South Africa, where the jury is out on whether the banks will be able to get away only by firing the rogue traders and refusing to be transparent or open about what happened. The ANC, the South African Reserve Bank and the National Treasury have all called for the toughest action against the banks.

Here's what you need to know from the investigation into the collusion in the fixing of rand trades.

So, how does it work?

The Competition Commission sets it out clearly. The detail is quite dry but it's important to understand where and how the allegedly unlawful profits were made. Analysts have explained that while the amounts involved on individual trades may have been small, but volumes are large.

"Suppose a customer who is an importer wants to the sell the ZAR (what the rand is known as on the markets) and purchase the US dollar: that customer will approach a dealer for a quotation of a spot transaction. The price at which a dealer is prepared to buy is called the bid, and the price at which the dealer is prepared to sell is called the offer." The difference between the two is called the bid-offer spread. This is where the manipulation happened: the traders wanted to widen the spread to increase their profits.

"The bid-offer spread is the difference between the bid and offer price and is a transaction cost for engaging the services of traders in foreign currency trade."

What's the problem?

The rules of fair trade went out of the window and were replaced by collusion, according to the Competition Commission.

"In the normal course of currency trading, traders should determine their prices of bid-offer spreads independently of each other. That is, they should price their bid offer spread based on the market forces of demand and supply. Traders should not discuss and agree among themselves about how much bid-offer spread prices to charge customers. If they do this, they fix the price of bid-offer spread."

Who are the heroes?

The Competition Commission is an excellent institution. Here are the people who led the investigation.

Mfundo Ngobese is an inspector and executive at the Competition Commission. He is fronting the investigation, which was referred to the Competition Tribunal for adjudication. The Competition Commissioner Tembinkosi Bonakele runs the razor sharp institution, which is looking into many forms of collusion in the economy including in the retail sector, banking costs and the school uniform sales industry. Price-fixing and cartels end up costing consumers and small businesses more. They initiated the complaint against the banks on April 1, 2015.

Ngobese tells the Competition Tribunal in no uncertain terms that he is not happy.

"I submit that the collusive agreements are egregious and a serious contravention of the [Competition] Act. This type of collusive conduct is harmful to the consumers as it deprives them of the benefits, which arise from competition. Such agreements are inimical to competition."

He continues: "The collusive conduct between the respondents as set out above constitutes a single conspiracy by the respondents to fix prices and divide markets...".

Four banks are out of the woods

Absa, Barclays Capital, Barclays and Citibank have either co-operated with the investigation or paid a fine. The Competition Commission revealed Citibank had paid a settlement penalty of for R69.5 million and Absa agreed to assist investigators.

14 banks could face massive fines

The Competition Commission is asking for an administrative penalty of 10 percent of turnover from the following banks: Bank of America Merrill Lynch; BNP Paribas; JP Morgan Chase; JP Morgan Chase N.A; Australia and New Zealand Banking Group; Standard New York Securities; Investec; Standard Bank; Nomura International; Standard Chartered; Credit Suisse Group; Commerzbank AG; Macquarie Bank Limited and HSBC Bank. Not all of these banks are authorised dealers in South Africa nor do all of them have branches here.

March deadline

When the Competition Commission fired its guns on February 15, it gave the banks 20 days in which to respond. They have all hired high-powered law firms to deal with the case. Eight of the banks are authorised dealers or registered banks in South Africa. The banks must respond in March.

What is a dealer?

"Dealers are large financial institutions or banks that accept orders from customers to buy and sell currencies. They are commonly known as market makers."

Who did the dealers harm?

Mostly, they directly harmed other business people. But the impact on fair competition in the foreign exchange markets will eventually make it into you and my pockets because unfair competition ends up costing consumers more. Their actions also harm the public because collusion and cartel like activity drive up prices of imported products. For those who travel, they can make it more expensive because hard currency purchases cost you more.

The Competition Commission papers set out the harm caused.

"Customers are entities or individuals that are seeking to exchange currencies by placing orders for trades with dealers. They include corporations or asset managers such as hedge funds, mutual funds, pension funds and various government financial institutions such as central banks and some individuals who exchange substantial quantities of currency."

"From at least 2010, (bank) representatives assisted each other by manipulating the price of bids and offers through agreements to refrain from trading at particular times. This was achieved by coordinating transactions. Traders reached agreements to refrain from trading, taking turns in transacting and by either pulling or holding trading activities on the Reuters platform."

Where did it happen? On platforms and chat-rooms.

Two traders platforms were the scenes of the alleged crime: the Reuters trading platform and Bloomberg's chatrooms. Reuters Dealing 3000 is a platform used by dealers to enter into currency trading with counterparts.

Bloomberg offers a "tool for communication (including) an electronic instant messaging platform through which traders may communicate. It is this instant messaging system that the respondents' used to communicate and coordinate their trading activities. This instant messaging system is called the Bloomberg chatrooms." Traders often called each other by phone too.

It happened a while ago

"...from at least 2007 until at least 2013, the respondents (the banks) entered into an agreement and or engaged in a concerted practice to directly or indirectly fix prices and divided markets by allocating customers in relation to bids, offers and bid offer spreads...".

Who did it?

The Competition Commission papers named the dealers involved in the alleged currency price manipulation. The papers are public so we name them here too.

The Competition Commission named the following traders as implicated in price fixing by fictitious bids and offers, especially around "The Fix", which is the time when currency benchmarks are set: Absa: Duncan Howes; Barclays: Nicholas Williams; BNP Paribas: Jason Katz; Citibank: Christopher Cummins; Investec: Clint Fenton; JP Morgan: Akshay Aiyer; ANZ: Murat Tezel.

Those implicated in collusion, by sharing customers' identities, positions, order volumes and customer strategy, which enabled the traders to coordinate and fix their quotations to those customers: Absa: Duncan Howes; Barclays: Nicholas Williams; Bank of America: Gavin Cook; BNP Paribas: Jason Katz; Citibank: Chris Cummins; Standard Chartered: Bernard Barisic, James Mullaney, Matthew Sweeney and Patrick McInerney; JP Morgan: Paul Simister and Akshay Aiyer; HSBC: Chris Hatton; Credit Suisse: Heinrich Putter; Investec: Clint Fenton; ANZ: Murat Tezel; Commerzbank: Nigel Dousie.

Those implicated in fixing bid-offer spreads: Absa: Duncan Howes, Elaine Naidoo, Premal Bhana and Thulani Kunene; Barclays: Nicholas Williams and Peter Taylor; BNP Paribas: Jason Katz; Citibank: Christopher Cummins; Standard New York: Richard de Roos and Louis Friedman; Standard Bank: Bryn Brownrigg; Nomura: Darren Dempsey; Macquarie Bank: Chris Harkins, Jason Atkins, Mark Chia, Bevan Murray, Luke Fryday and Tim Donnelly; ANZ: Murat Tezel; JP Morgan: Akshay Aiyer.

The common names across the various alleged illegal actions are Duncan Howes, Jason Katz, Christopher Cummins, Murat Tezel and Akshay Aiyer.