Inside banking's biggest rogue trading scandals

The London Interbank Offered Rate scandal that rocked the UK's financial system in 2012 set the ball rolling on a cleaning spree across banks' executive suites.

Libor is an average of interest rates submitted by banks, measuring the rate at which banks borrow from each other.

The 2012 purge resulted in the resignation of the then Barclays CEO Bob Diamond after it emerged that member banks had colluded to manipulate the rates they submitted to Libor.

It was during those crackdowns, and the revelation of more misconduct among traders and other institutions, that a local bank approached the Competition Commission, offering information about a currency price-rigging cartel operating among several banks across the globe.

International regulators also alerted the Competition Commission that South Africa was on the radar of their investigations.

Makgale Mohlala, the manager of the cartels division at the Competition Commission, gave some of the background to the commission's probe, which resulted in 18 institutions being referred to the Competition Tribunal this week.

story_article_left1

"The UK and US had already fined [the] ... big banks. We followed those events closely and, in the process, we were approached by some of the banks with information. One of them was local," he said.

This triggered the Competition Commission's investigation.

Traders behaving badly might be a new phenomenon for South Africa, but rogue traders and collusive operations are common in the UK, US and Europe.

Jason Katz, a US-based former Barclays trader specialising in emerging-markets currencies, is named in the Competition Commission's affidavit.

Last month Katz appeared in the Manhattan Federal Court and admitted participating in a conspiracy with other bankers to manipulate emerging-markets currency trades while working at three different financial institutions from 2007 to 2013.

The Federal Reserve Board banned Katz from banking.

Katz joined a long and growing list of "rogue" traders responsible for currency price-fixing, speculative trading and other forms of risky and little-understood trading games.

Nick Leeson, whose gambling as a derivatives broker collapsed Britain's oldest merchant bank, Barings Bank, is the original rogue trader.

On February 26 1995, a day after Leeson's 28th birthday, the bank went under.

Leeson's speculative futures trading resulted in Barings bleeding £827-million in losses.

In 2008, French trader Jérôme Kerviel, who was 31 at the time, brought Société Générale, one of the biggest banks in Europe, to the brink of bankruptcy when his trades resulted in the bank incurring £3.7-billion in losses.

He maintained that he was just one cog in a rotten machine and had been made a scapegoat for the bank's system.

Last year Kerviel sued the bank for wrongful dismissal.

A French tribunal ruled that Kerviel was fired "without real or serious cause" and that the bank had full knowledge of his shady dealings long before he was booted out.

sub_head_start Currency Trading for beginners sub_head_end

• The currency trading market is the largest and most liquid in the world.

• About $5.3-trillion (about R70-trillion) a day is traded on the international foreign exchange market, according to the Bank for International Settlements.

• To put this into perspective, this averages out at $220-billion an hour. In 2013, the New York Stock Exchange daily trading value totalled about $169-billion.

story_article_right2

• Unlike stock markets around the world, the currency market is open 24 hours a day, five and a half days a week. The market is open from Monday morning in Asia to Friday afternoon in New York.

• And unlike the stock and futures markets, which are housed in central physical exchanges, the foreign exchange market is an over-the-counter, decentralised market housed electronically. Banks from Hong Kong to Zurich, London, Johannesburg and New York trade in forex.

• There are three categories of participants in the international currency market:

1) Customers - large corporations

2) Dealers - large financial institutions, such as the banks; and

3) Currency trading brokers.

• Currencies are always quoted in pairs, for example: USD/ZAR or EUR/ZAR. When you are buying one currency you are always selling another.

• Spot currency prices are trades where prices are agreed to on the spot and paid for quickly.