US Department of Justice Widens FX Probe to Include Currency-Linked Products
by
Kenny Mariasin
The DoJ will examine currency-linked investments sold by Barclays and UBS. The structured products under scrutiny are both based on carry trades and were sold to Swiss hedge funds and other sophisticated investors.
The US Department of Justice is widening its probe of the Forex market. Until now their investigation has been limited to rigging of rates, but now the Financial Times reports that the judicial authority will be examining currency-linked investments sold by Barclays and UBS.
The DoJ will reportedly be examining whether the two banks neglected to disclose profit from the selling of structured products (specifically profit from the currency trades that generate the products’ returns). These were sold to several Swiss hedge funds and other sophisticated investors.
Carry Trade Products
The structured products under scrutiny are both based on carry trades. A carry trade is when an investor borrows from a low-yielding currency and invests in a higher-yielding one, earning the spread. Given the nature of the products as sophisticated securities, some are reportedly arguing that failure to fully disclose should not be penalized.
But the DoJ is pressing on, interested in UBS’ V10 enhanced FX carry strategy and a similar strategy from Barclays. These both allow investors to switch out their positions if currency markets became volatile. The question for the DoJ is whether UBS and Barclays profited from switching their positions and, more to the point, whether these profits were disclosed to clients.
According to the Financial Times’ sources, the DoJ will also be investigating other banks on allegations of inadequate profit disclosure of currency deals to clients and counterparties. It has reportedly been known for some time that the DoJ is planning to seek retribution for undisclosed fees and mark-ups that sales staff charged to clients, but this is the first solid information to emerge.
Settlements for All
UBS already paid out $799 million to US, UK and Swiss authorities in November as part of a Settlement with five other banks on allegations that they did not satisfactorily prevent traders from fixing forex rates. The overall settlement was upwards of $3 billion. Barclays did not take part in that settlement due to uncertainty regarding action by the New York Department of Financial Services. However, they did set aside £500 million.
Their probe still ongoing, the DoJ didn't take part in that settlement either. Now UBS might be the first bank to face a DoJ fine. According to the Financial Times, people close to the situation say that a resolution might not appear before April.
DoJ's extension of its investigation into structured products could have a big impact on bank business practices. If negligence or criminal behaviour is discovered, it could pry open greater disclosure from banks for sophisticated clients and counterparties in a wide range of financial products.
The US Department of Justice is widening its probe of the Forex market. Until now their investigation has been limited to rigging of rates, but now the Financial Times reports that the judicial authority will be examining currency-linked investments sold by Barclays and UBS.
The DoJ will reportedly be examining whether the two banks neglected to disclose profit from the selling of structured products (specifically profit from the currency trades that generate the products’ returns). These were sold to several Swiss hedge funds and other sophisticated investors.
Carry Trade Products
The structured products under scrutiny are both based on carry trades. A carry trade is when an investor borrows from a low-yielding currency and invests in a higher-yielding one, earning the spread. Given the nature of the products as sophisticated securities, some are reportedly arguing that failure to fully disclose should not be penalized.
But the DoJ is pressing on, interested in UBS’ V10 enhanced FX carry strategy and a similar strategy from Barclays. These both allow investors to switch out their positions if currency markets became volatile. The question for the DoJ is whether UBS and Barclays profited from switching their positions and, more to the point, whether these profits were disclosed to clients.
According to the Financial Times’ sources, the DoJ will also be investigating other banks on allegations of inadequate profit disclosure of currency deals to clients and counterparties. It has reportedly been known for some time that the DoJ is planning to seek retribution for undisclosed fees and mark-ups that sales staff charged to clients, but this is the first solid information to emerge.
Settlements for All
UBS already paid out $799 million to US, UK and Swiss authorities in November as part of a Settlement with five other banks on allegations that they did not satisfactorily prevent traders from fixing forex rates. The overall settlement was upwards of $3 billion. Barclays did not take part in that settlement due to uncertainty regarding action by the New York Department of Financial Services. However, they did set aside £500 million.
Their probe still ongoing, the DoJ didn't take part in that settlement either. Now UBS might be the first bank to face a DoJ fine. According to the Financial Times, people close to the situation say that a resolution might not appear before April.
DoJ's extension of its investigation into structured products could have a big impact on bank business practices. If negligence or criminal behaviour is discovered, it could pry open greater disclosure from banks for sophisticated clients and counterparties in a wide range of financial products.
Cheetah Fund Investors Lose $9 Million in Alleged Fraudulent Scheme
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
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Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
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