British investigators are examining millions of electronic messages which include fresh evidence of possible collusion by a small group of top currency traders, according to sources.
The investigators have been handed chatroom transcripts showing senior dealers at the big banks that dominate the largely unregulated foreign exchange market routinely sharing intelligence on orders they were about to place for clients.
The traders pooled order details from hedge funds and discussed the prices they should be offered, said the sources, who have seen some of the messages at the centre of an international probe into alleged collusion in world foreign exchange markets.
In a chatroom transcript from April 2012, two traders discussed the "spread" that should be given to a certain hedge fund. The fund wanted a spread of five basis points on its foreign exchange order, but the first trader offered a spread of six.
A wider spread is effectively a less advantageous price to the customer, in this case the hedge fund, and a more attractive price to the market-making bank.
"I don't like this guy, as he's asking two or three banks at the same time," said the second trader in the chat, according to a person familiar with the contents of the transcript.
"I'd show 6 to good guys but guys like that I'm going to show 7 in future," the trader added.
The first trader then decided to quote a spread of 7 basis points, said the person familiar with the transcript.
Reuters didn't see the confidential transcripts, read verbatim to Reuters by one source.
The Financial Conduct Authority - the main British regulator - and the Alternative Investment Management Association, an umbrella group representing the global hedge fund industry, declined to comment.
Any evidence of collusion would be another blow to some of the world's largest banks, already hit by big fines and new regulations in the wake of world financial meltdown five years ago. The latest estimates by banking sector analysts of likely fines for such anti-competitive practices in the currency market now far exceed the $6 billion levied to date in the Libor interest rate rigging scandal - some by up to six times.
Although the laissez-faire nature of currency markets means criminal laws may not have been broken, several US civil lawsuits have already been filed alleging collusion that allowed banks to profit at the expense of their customers. The anti-trust division of the US Department of Justice has also said it is investigating collusion.
The chatroom transcripts from 2011 and 2012, which are in the hands of the FCA, are between three senior traders at three of the world's largest FX banks. All three traders have since been sanctioned to one extent or another by their banks, sources have told Reuters.
Between them the three banks account for around 30 per cent of the $5.3 trillion global daily average turnover, according to Euromoney magazine.
The three banks declined to comment. The traders either declined to comment or could not be reached.
The traders, although ostensibly competitors with each other, united against certain hedge funds because they felt the need to "protect themselves against the hedge funds' aggressive trading strategy which abused liquidity", according to one source.
European Union laws due to come into force in 2016 will make manipulation of the currency rates a criminal offence, with jail terms of up to four years. Britain plans to follow with suit with its own statutory regulation.
The investigation into the traders involves the DoJ and FCA and around a dozen authorities and regulators around the world. They are focusing on trading activity around the afternoon "London fix", where the market agrees on one daily price despite the fact dealing is continuous worldwide around the clock, rather than on regulated exchanges.
Some 40 FX employees at many of the world's biggest banks have been placed on leave, suspended or fired as part of the global investigation - including one employee at the Bank of England - although no individual or institution has been accused of any wrongdoing.
The market has agreed that the prevailing exchange rate at 4 p.m. in London for around 160 currency pairs will serve as a global benchmark to be used by a range of players who need access to foreign currency.
The WM/Reuters fix is compiled using data from Thomson Reuters and other providers, and calculated by WM Company, a unit of State Street Corp. Thomson Reuters is one of the various distributors of the rate. Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.
Copyrighy: Thomson Reuters 2014