From their desks at some of the world's biggest banks, traders exchanged a series of instant messages that earned them the nickname "the cartel."
Much like companies that rigged the price of vitamins and animal feed, the traders were competitors that hatched alliances for their own profits, federal investigators suspect.
If those suspicions are correct, the group of traders shared a mission to alter the price of foreign currencies, the largest and yet least regulated market in the financial world. And ultimately, they flooded the market with trades that potentially raised the cost of currency for clients but aided the banks' own investments.
Now the instant messages, along with similar activity among other traders, are at the centre of an international investigation into banks like Barclays, the Royal Bank of Scotland and Citigroup, according to recent public disclosures by the banks and interviews with investigators who spoke on the condition of anonymity. The investigators secured the cooperation of at least one trader, a development that has not been previously disclosed.
Although the investigation is at an early stage, authorities are already signaling the likelihood of a legal crackdown.
"The manipulation we've seen so far may just be the tip of the iceberg," the United States Attorney General, Eric H Holder Jr, said in a rare interview discussing an active investigation. "We've recognised that this is potentially an extremely consequential investigation."
The banks all declined to comment. No one has been accused of wrongdoing, and any improper actions probably would have involved only a corner of the overall market. One former member of the group called the "cartel" has told colleagues that the nickname reflected the traders' success, not any improper collusion, according to a person briefed on the group. The group was informal, the person said, and its name came from outside traders.
But coming fast on the heels of a similar investigation into the rigging of global interest rates, the latest scrutiny has unnerved the world's biggest banks, setting off internal scrambles to contain the damage. Nine of the largest banks in currency trading have announced they are facing inquiries. The banks placed about a dozen traders on leave pending the outcome of the inquiry. And several banks are considering limiting the ability of their traders to chat electronically.
The priority that investigators are giving the case, which focuses on trading over the last decade, reflects the significance of the market in the world's major currencies itself. With trading of more than $5 trillion a day, it dwarfs any stock or bond market.
Further underscoring its importance, pension funds and other investment managers value their portfolios using a benchmark of the currency market. An independent service publishes that benchmark, which is at the centre of the investigation.
©2013 The New York Times News Service
