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