The Forex Claim

On 16 May 2019, the European Commission found six banks guilty of taking part in two cartels in the Spot Foreign Exchange market for 11 currencies – Euro, British Pound, Japanese Yen, Swiss Franc, US, Canadian, New Zealand, and Australian Dollars, and Danish, Swedish and Norwegian crowns.

The first decision (so-called “Forex – Three Way Banana Split” cartel) imposes a total fine of €811 197 000 on Barclays, The Royal Bank of Scotland (RBS), Citigroup, and JPMorgan. The second decision (so-called “Forex- Essex Express” cartel) imposes a total fine of €257 682 000 on Barclays, RBS, and MUFG Bank (formerly Bank of Tokyo-Mitsubishi). UBS is an addressee of both decisions but was not fined as it revealed the existence of the cartels to the Commission.

The Commission’s investigation revealed that some individual traders in charge of Forex spot trading of these currencies on behalf of the relevant banks exchanged sensitive information and trading plans, and occasionally coordinated their trading strategies through various online professional chatrooms. The commercially sensitive information exchanged in these chatrooms related to

(1) outstanding customers’ orders (i.e. the amount that a client wanted to exchange and the specific currencies involved, as well as indications on which client was involved in a transaction);
(2) bid-ask spreads (i.e. prices) applicable to specific transactions;
(3) their open risk positions (the currency they needed to sell or buy in order to convert their portfolios into their bank’s currency), and;
(4) other details of current or planned trading activities.

The information exchanges, following the tacit understanding reached by the participating traders, enabled them to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when. Occasionally, these information exchanges also allowed the traders to identify opportunities for coordination, for example through a practice called “standing down” (whereby some traders would temporarily refrain from trading activity to avoid interfering with another trader within the chatroom).

Most of the traders participating in the chatrooms knew each other on a personal basis – for example, one chatroom was called Essex Express ‘n the Jimmy because all the traders but “James” lived in Essex and met on a train to London. Some of the traders created the chatrooms and then invited one another to join, based on their trading activities and personal affinities, creating closed circles of trust. The traders, who were direct competitors, typically logged in to multilateral chatrooms on Bloomberg terminals for the whole working day and had extensive conversations about a variety of subjects, including recurring updates on their trading activities. The Commission’s investigation revealed the existence of two separate infringements concerning foreign exchange spot trading:

(1) The Three-Way Banana Split infringement encompasses communications in three different, consecutive chatrooms (“Three-way banana split / Two and a half men / Only Marge”) among traders from UBS, Barclays, RBS, Citigroup, and JPMorgan. The infringement started on 18 December 2007 and ended on 31 January 2013.

(2) The Essex Express infringement encompasses communications in two chatrooms (“Essex Express ‘n the Jimmy” and “Semi Grumpy Old men”) among traders from UBS, Barclays, RBS, and Bank of Tokyo-Mitsubishi (now MUFG Bank). The infringement started on 14 December 2009 and ended on 31 July 2012.

Foreign Exchange, or “Forex”, refers to the trading of currencies. When companies exchange large amounts of a certain currency against another, they usually do so through a Forex trader. The main customers of Forex traders include asset managers, pension funds, hedge funds, major companies, and other banks.

Forex spot order transactions are meant to be executed on the same day at the prevailing exchange rate. The most liquid and traded currencies worldwide (five of which are used in the European Economic Area) are the Euro, British Pound, Japanese Yen, Swiss Franc, US, Canadian, New Zealand and Australian Dollars, and Danish, Swedish, and Norwegian crowns.

Any person or company affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. The case-law of the Court and Council Regulation 1/2003 both confirm that in cases before national courts, a Commission decision constitutes binding proof that the behaviour took place and was illegal.

This legal action is seeking to return hundreds of millions of pounds to pension funds, asset managers, hedge funds, and corporates from around the world who were affected by the Forex cartel. The fact that UBS was not fined, as a result of its immunity application, does not mean that it cannot be held liable for damages.

In accordance with the EU-UK Withdrawal Agreement, the European Union continues to be competent for this case which was initiated before the end of the transition period (“Continued Competence Case”). The EU shall reimburse the UK for its share of the amount of the fine once the fine has become definitive. The collection of the fine, the calculation of the UK’s share, and the reimbursement will be carried out by the European Commission.

Under Article 92 of the Agreement, the Commission remains competent for ongoing administrative procedures relating to competition in the UK, that may impact trade between the EU Member States, provided these procedures were initiated before the end of the transition period (31 December 2020). Decisions issued by the EC in Continued Competence Cases are binding on the UK and any appeals are subject to review only by the EU courts.