[NEW YORK] New York's financial regulator has sent subpoenas to Goldman Sachs, Credit Suisse, BNP Paribas and Societe Generale, expanding its probe into the possible rigging of foreign exchange rates through computer programs, people familiar with the matter said.
The state's Department of Financial Services, overseen by superintendent Benjamin Lawsky, is looking at whether algorithms in the banks' electronic trading platforms have been used to front-run or otherwise take advantage of clients, the sources said.
The department is already probing Barclays and Deutsche Bank over their trading platforms and installed monitors in the two banks for a closer look at what's going on.
International authorities have been investigating whether banks rigged the US$5.3 trillion-a-day currency markets for more than a year.
In November, UK and US regulators fined six banks a total of US$4.3 billion after a global investigation of their failure to stop traders from trying to manipulate the foreign exchange market.
Barclays did not join the settlement, Reuters reported, because of complications with the New York regulator. The US Department of Justice is now pushing four major banks to plead guilty to criminal charges for alleged manipulation, the New York Times reported Monday.
The New York regulator's subpoenas to Credit Suisse, Goldman Sachs, Societe Generale and BNP Paribas were sent in December, according to one person familiar with the matter. They seek information relating to discretionary actions by the banks in implementing algorithms to accept or reject trades.
The banks started to produce information in response in late January, and have met with officials handling the investigation, sources said.
At issue is a latency period between the time an offer is floated and accepted, sources say, and whether the banks are gaming their clients during that time. At least one bank claims the pause in the programs is designed to protect it from high-frequency traders, one person said.
But others familiar with the practice say the time lag is a way for banks to manipulate the rates so they favor them.
Transcripts of traders in online chat rooms that led to the settlements in November show them working together to move rates.
There also are transcripts in which they discuss the manipulation of algorithms, one source said.
Ironically, just released industry guidelines warn banks not to abuse "last look" rights that allow them a final chance to reject deals on foreign exchange platforms.
Representatives of Goldman Sachs, Credit Suisse, BNP Paribas, and Societe Generale declined comment or could not be reached.