Whilst Forex trading is carried out at any time during the day, certain transactions are settled against rates determined by the banks at a specific time of day, based on the prevailing prices for a currency pair. This is known as “The Fix” and was traditionally set over a sixty second window at 30 seconds before and 30 seconds after 4PM London time on the basis of the prevailing average currency rates for this interval. The Fix is also referred to as the Spot value for a currency. For instance, if you went to a bank or Foreign Exchange bureau to order a large sum of foreign currency for a foreign holiday (or an unusual currency that was not held in stock), the order would be processed against the Fix on the day that the transaction was made. Since the Fix would be used to determine the rate for a given pair, it is very important and could be manipulated by unscrupulous traders working for the major banks whose basket of data was used in determining The Fix.
Traders from (at least) five major banks have been found to have improperly gamed The Fix. JP Morgan, Barclays, Citigroup and RBS have been fined a record total of $5.7 billion for manipulating the Forex market. Another bank, Swiss giant UBS is set to plead guilty to the same charge.
The manipulation was done through collusion with participants hoarding large trades until the time window and knowing how these trades would affect a pair by moving the market, they could profit from their own positions trading just before or after the large trade went through. Barclays was hit hardest with a fine of $2.4 billion since it did not settle in November when Swiss, UK and US regulators were investigating the affair. It is said to be sacking 8 staffers involved in the swindle. The banks involved worked the scam on a nearly daily basis for five years (at least) from 2007. The US Attorney General, Loretta Lynch, claimed that the actions of the banks harmed “countless consumers, investors and institutions around the world”.
Bank of America has been fined $205 million for similar activities by the Federal Reserve; the other banks were fined jointly by the Department of Justice (DoJ) and the Fed. Fines levied by the DoJ are for criminal activity and it has been suggested that criminal proceedings against individuals might follow which would make a refreshing change. Banking analysts had anticipated that the fines imposed would have been higher.