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Banks and National Treasury challenge claims of currency manipulation and market collusion

Banks and National Treasury challenge claims of currency manipulation and market collusion
Illustrative Image: (Photos: Gallo Images / Financial Mail / Russell Roberts | Supplied | Gallo Images / Misha Jordaan | Leila Dougan | Rawpixel)

National Treasury has argued that the alleged actions of banks to manipulate the dollar-rand exchange pair from 2007 to 2013 were not the main cause of the local currency substantially losing its value over the past decade, or the economy being in the doldrums. Rather, problems such as Eskom blackouts and the logistics crisis are to blame.

South Africa’s commercial banks have delivered a spirited defence against allegations of currency manipulation and market collusion, saying there is no evidence against them in the Competition Commission’s eight-year case.  

Meanwhile, National Treasury has argued that the alleged actions of 28 banks to manipulate the US dollar-South African rand exchange pair from 2007 to 2013 were not the main cause of the local currency substantially losing its value over the past decade or the economy being in the doldrums.  

Treasury said if the banks were to be found guilty of artificially influencing the currency pair by the Competition Tribunal, which acts as a court on antitrust matters, it would “indicate the prevalence of poor market conduct practices” at the time of the pernicious behaviour.  

The alleged behaviour of currency traders belonging to the 28 implicated banks would have affected individual clients of the banks, as they — rather than the country and its economy — would have directly felt the pain of slight movements in the exchange rate, Treasury said. 

“It [the alleged wrongdoing of banks] would not have influenced the depreciating trend of the currency since 2013, the level of which is driven by broader changes in the global and domestic economy. 

“The value of the currency today, which has depreciated against the dollar, and the resulting impact on prices should not be attributed to these instances of misconduct between 2007 and 2013,” Treasury said.  

Country-specific issues such as Eskom blackouts and the logistics crisis caused by dysfunction at the state-owned transport group Transnet affected the value of the currency in the long term.  

Underscoring the impact on individual clients is that banks usually help customers exchange currencies of various countries. Slight movements in the dollar-rand exchange rate would allow banks to grow the “spread”, which is the gap between the “bid” (the price at which banks buy a currency) and the “offer” (the price at which they sell a currency). A bank usually sits between clients who need to convert a foreign currency into rands and other clients who need to convert rands into that foreign currency. 

For example, South Africa-based mining houses usually need to convert dollar-based commodities they produce into rands during the sales process of such commodities, and they approach banks for this function. A bank currency trader might offer to buy dollars from the mining house at R18.205 per dollar. But this would usually be at an inflated price (following the currency rigging scenarios) as normal market forces would pitch the rand at R18.105 per dollar. The difference in pricing between the two (nearly one cent) could run into millions of dollars for the mining house.  

Meanwhile, the SA Reserve Bank, whose mandate is to protect the value of the rand, has not intervened in the currency manipulation matter, with the central bank’s governor, Lesetja Kganyago, stating that the Competition Commission is the “competent authority” to probe the alleged misconduct of banks. 

Kganyago reflected on the matter last week after announcing that interest rates would be unchanged.  

Code of conduct

The SA Reserve Bank launched its investigation in response to reports of global forex market abuses in 2014. It found no evidence of any misconduct by banks trading the rand or breaches of exchange control regulations. However, its investigation recommended that a code of conduct be developed for the forex market, with “the intention to promote a robust, fair, liquid, open and transparent market”. The bank also pledged its commitment to the global code of conduct that many central banks signed up to at the time. 

The approach by Treasury and Reserve Bank on this matter is at odds with those of some in government circles. Minister in the Presidency Khumbudzo Ntshavheni blasted banks a few days ago, saying that the weakness of the rand was a function of the private sector manipulating the currency. 

She also accused the private sector of having “no interest in the development of this country, which continues to engineer and do machinations to make sure the government collapses”. 

Further igniting criticism of the 28 banks charged by the Competition Commission is that UK-based Standard Chartered became the second bank to admit wrongdoing and paid an administrative penalty of R42.7-million.  

Read more in Daily Maverick: Standard Chartered admits to rand rigging, agrees to pay fine of R42.7m 

Citibank paid an administrative penalty of R69.5-million in March 2017, while Barclays plc, Barclays Capital and Absa cooperated with the commission to be granted leniency.

In an opinion article, Standard Bank CEO Sim Tshabalala denied that the bank, which has also been charged by the commission, manipulated the value of the rand or engaged in any anticompetitive or criminal conduct.

“Our position is very, very clear. We did extensive investigations and we offered these up to the authorities, and we continue to remain open to those conversions with them,” wrote Tshabalala. “We have looked at our call logs, we’ve looked at documentation, we’ve looked at people’s calls, and I can tell you our traders conduct themselves with impeccable rectitude, as do our salesmen and women. We’ve found no such evidence.” 

Standard Bank’s long-run performance depended on the success of the economy and on the economic wellbeing of its clients, he added. 

Nedbank, another bank charged, denied it was involved in anti-competitive behaviour and said the Competition Commission had failed to provide any evidence to support the allegations of currency manipulation. 

“There is no evidence, either from Nedbank’s own investigations or presented by the commission, of any Nedbank traders participating in any of the chatroom conversations or in any conspiracy in respect of rand trading,” the bank said. 

But the commission sees the matter of evidence differently. Bank traders at 28 local and international banks are accused by the commission of entering into a general agreement or “single overarching conspiracy” to collude on prices for bids, offers and bid-offer spreads for spot trades in relation to currency trading from 2007 to 2013. In doing so, they allegedly used platforms such as the Reuters currency trading platform and the Bloomberg instant messaging system (chatroom), as well as telephone conversations and meetings, to coordinate their alleged collusive trading activities. DM


Comments - Please in order to comment.

  • Grumpy Old Man says:

    How unusual! Politicians employing scapegoat tactics to mask their own failures.
    Then you have Floyd Shivambu singing loudest from the rafters about the implicated Banks needing to pay a 10% of turnover penalty.
    That is the same Floyd who participated in the feeding frenzy which ultimately led to the the liquidation of VBS Mutual Bank & from the life savings of the very people he claims to champion.
    This is yet another delicous, re-packaged, white monopoly capital conspiracy theory. Unfortunately however we live in a world where you can somehow get away with comparing apples with bicycles & where it’s possible to promote the idea that 1+1 = Wednesday

  • Dragon Slayer says:

    @Khumbudzo Ntshavheni – probably really believes what she is sprouting – more evidence of the arrogance of complete ignorance.
    The real problem is utter incompetence in every aspect of public good provision and service delivery. The ANC led government will go down in history as no more than a mindboggling sheltered employment and personal enrichment scheme.

    • Pieter van de Venter says:

      And now this chihauhau of the cabinet, now blames men for her lack of knowledge. The male dominated media is at fault for pointing out her total ignorance and stupidity on all matters linked to the economy.

      What a bunch of total @rses that are trying to blame everyone and his/her/it dog for incompetence and greed.

  • robby 77 says:

    ‘to engineer and do machinations to make sure the government collapses’. Why I think the government is doing quite well in this department all by themselves. No help needed.

  • Cunningham Ngcukana says:

    There was a clown called Kevin Wakeford who was the CEO of Sacob who in 2001 claimed manipulation of the Rand when it fell from R7,60 to R13,84. He accused three companies that were involved and a bank. The Myburgh Commission was set up by the then President Thabo Mbeki to the amazement of many who had a coefficient of thinking and understanding of financial and investment management that an amount he was claiming to be involved at that time that was R6 billion could result in such a massive depreciation. The surprise that was coming from a former executive of Adock Ingram was very sensational as the matter is today. The clown was given a sharp shoe by SACOB when it was explained to the executives that direct currency trade is a very small amount of trade and there are restrictions on foreign exchange that were in place. This is the same conspiracy theory by a failing government that is facing electoral defeat and inability to deal with the electricity energy and logistics challenge, coming from one Ntshavheni it was not surprising to some of us because she spews a lot of drivel. To those who ask me I ask them why are the importers from the car assembly companies not raising the issue that would be hitting their bottom line but thieves in government and parliament of our tax. Just from that you can see that it is an unfounded conspiracy theory to divert South Africans from their own failures. The Reserve Bank and Treasury have done a responsible thing in correcting this.

  • Cunningham Ngcukana says:

    In this Kevin Wakeford like saga, that has a lot of people falling over each other to comment let alone the thieves in government and parliament, we are told of the banks that are very much concerned about the economic situation in the country. They have put up a program that the government cannot deny it was of the best youth employment programmes by the private sector called the YES Programme. Yet these are the people accused by the child Minister of trying to collapse the country when they are the very people who have been fingered by Zondo as being responsible for the economic morass the country finds itself in. They are the very people who were at the fore front of fighting state capture through the appointment of funny Ministers of Finance by Jacob Zuma. The very fact we do not have any of the companies suing the banks over the drivel spewed by Ntshavheni, the ANC, cheque collectors and financial illiterates it tells us that these are blatant lies that do not have any basis in fact. We await the Competition Commission to give us the amounts involved and the impact as well as how this happened if indeed it is true. However, we are not going to listening to thieves of public money who have no shame to be lying with a straight face including the motor mouth in Luthuli House.
    We should have had a real uproar from the financial services sector including the retirement fund industry that would be highly impacted by such because of the investments in various instruments.

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