FX Antitrust Settlements: The Gross Fund and the Cut to Fees

The foreign exchange antitrust settlement fund totaled $2,310,275,000 before deductions, through fifteen agreements resolving alleged coordination of currency pricing and benchmarks. The court cut a $381,353,830 fee request and tied fee payments to progress distributing the fund. If you know how a trading desk coordinated with a rival, the story behind that fund matters too: who shared the instruction, what happened around the benchmark fixing, and whose position benefited.

What the FX Settlement Fund Covered

The court approved the private settlements on August 6, 2018, for purchasers injured by the alleged interference with foreign-exchange prices. The customers were buying and selling currency in a market where banks were supposed to compete for their business. The allegation was that banks coordinated the prices instead.

For a customer, the private case concerns the loss from that alleged interference. For an employee who knows how it worked, the information may support a whistleblower matter. The private fund answers the customer’s claim for compensation. A bank’s criminal plea can show the trading decisions behind the conduct, as Citicorp’s does below.

FX Settlement Fees and Distribution Tranches

The FX settlement’s 13 percent fees amounted to $300,335,750, less than the request. The November 8, 2018 fee ruling also denied the request for interest and tied fee-payment tranches to distribution progress.

Expenses were separate. The court had awarded $22,490,654 on August 16, 2018. The fee compensated the work of bringing the class case, while expenses were an additional charge against the fund.

The court made getting money to the class part of the conditions for paying the fee. The headline fund came before those deductions and payments to claimants.

What an FX Insider Would Recognize

Coordinated trades and deliberately withheld quotes can reveal the agreement behind an exchange rate. Citicorp’s May 20, 2015 criminal guilty plea supplies a concrete example from the euro/U.S. dollar spot market.

In that plea, Citicorp admitted a conspiracy in which traders used an exclusive chat room, coordinated around benchmark fixes and withheld bids or offers to protect rivals’ open positions. The conduct included decisions to stay out of the market when competing would have hurt another participant. The absence of a bid could serve the agreement as much as an executed trade.

That gives the communications and trading records a purpose. A chat timestamp can place an instruction beside a fixing window. Position records can explain who stood to benefit. The bids, offers and trades can show what the desk did after the communication. Someone who understands the desk’s decisions can connect those pieces.

A Separate Benchmark Case Shows Why the Clock Matters

The Royal Bank of Scotland’s ISDAFIX matter shows how a benchmark’s calculation time could become a trading target. This concerned an interest-rate benchmark used to price or value derivatives.

In its February 3, 2017 account of the RBS order, the Commodity Futures Trading Commission found that traders tried to influence the benchmark by bidding, offering and trading swap spreads and U.S. Treasuries at the critical 11:00 a.m. Eastern Time fixing. The traders sought to benefit positions priced against the resulting benchmark.

The agency described a process that began with a broker capturing rates and spreads at the fixing time. The broker circulated that snapshot to a panel of banks, including RBS. The banks then submitted the rates at which they would bid or offer interest-rate swaps to a dealer of good credit. RBS traders targeted the prices going into that snapshot to influence the published benchmark.

The rate had a direct use in customers’ transactions. The CFTC described it as a basis for cash settlement of options on interest-rate swaps, known as swaptions. RBS held swaptions priced against the benchmark and tried to move it to benefit those positions. The desk had an interest in the rate it was trying to influence.

The agency described emails and audio recordings in which traders discussed moving the fixing. Traders also told their broker the direction they wanted rates to move. It quoted one trader explaining the difference between dealing with banks and dealing with clients:

The customer depended on a benchmark while the desk tried to move it. That is why the timing, the position and the instruction belong together. A rate by itself cannot tell the story that the trader’s communication supplies.

How Much of a Settlement Does a Whistleblower Get?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We assess whether the conduct you know about touched government money and what that means for your whistleblower case.

The FX fund compensates private claimants for alleged trading losses. A whistleblower reward comes through a separate program. The Antitrust Division and U.S. Postal Service have a rewards program, and the CFTC has its own whistleblower award process. We work with trading insiders to identify the whistleblower route their information supports, including the connection between communications, positions and customer losses.

NASDAQ Settlements Also Followed Dealer Spreads

The NASDAQ market-maker settlements also concerned allegedly coordinated pricing, specifically dealer bid-ask spreads and the avoidance of certain quote increments. The court’s approval opinion addressed private settlements followed by allocation and fee administration.

The parallel with FX is the alleged effort to protect the terms on which customers traded. Quotes that should have reflected competition instead reflected alleged coordination among dealers. For an insider, the shared pattern is the agreement behind the price: what rivals communicated and how their quoting decisions carried it out.

You Know What Happened on the Desk

Bring your knowledge of FX chats, positions and customer orders to our whistleblower experts so we can examine the trading behind the claimed losses.