Three FX traders at HSBC Holdings Plc are facing charges of “front-running” foreign exchange orders submitted by British investment firm ECU Group in 2006.
The new charges could cause more damage to the reputation of the global bank’s forex trading business and even fuel more calls for HSBC to face full criminal charges. Several class-action lawsuits have been filed and settled against HSBC and other lenders, with banks paying out hundreds of millions in compensation.
HSBC was bracing itself in anticipation of new charges amounting to several millions of pounds over foreign exchange manipulation after a fresh class-action lawsuit was triggered by ECU Group. The UK-based FX investment firm has sued Europe’s largest lender by assets in London, asking for HSBC to disclose internal records centering on three large forex orders that it executed in 2006.
The firm detailed how HSBC’s traders allegedly used a technique known as ‘ramping’ that caused the prices to spike, benefiting the bank’s trading book at the expense of the client.
The court filing noted that ECU Group placed three stop-loss trades, each worth over $100 million, and each time the exchange rate rose sharply up to the trigger level before quickly retreat to normal levels. The price spikes caught the attention of the firm, which suspected that it was being ripped off by HSBC traders.
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ECU believes that this market manipulation, pulled off through traders’ coordinated transactions and exchange of confidential customer information, caused the firm to pay higher prices than they would have in a competitive market.
HSBC told to hand over 2006 records
The company won a court order forcing HSBC to disclose its interbank dealing tickets, deal log entries, and any relevant Bloomberg instant messages for the three trades, including those of its London and New York proprietary trading desks. In addition, it is asking that all documents relating to the bank’s internal investigations carried out 11 years ago on ECU’s request are revealed.
ECU reopened its complaint after the US authorities arrested two HSBC traders in 2016, including the bank’s former global head of foreign exchange trading, Mark Johnson. The former HSBC banker who was convicted in the US of fraudulently rigging a multi-billion dollar currency exchange deal walked out of prison in 2018 after he put up his $1 million bail.
Mark Johnson, a British citizen, was found guilty of defrauding Scottish oil and gas developer Cairn Energy PLC by front-running its currency exchange order. A second Briton, Stuart Scott, who left HSBC in 2014, was named alongside Johnson as accused of the same crimes.
Johnson and Scott are alleged to have made $3 million profit by trading currencies in advance of the client buying $3.5 billion worth of UK pounds in 2011.