The foreign exchange market is the world's largest financial market, with $5.3 trillion traded daily. The WM/Reuters benchmark rates, set at 4pm London time, are used to price trillions of dollars in investments, pensions, and corporate contracts. For at least a decade before 2013, traders at the world's largest banks manipulated these benchmarks through secret chat rooms, sharing client order flow and coordinating their trades to profit at the expense of clients and the broader market.
Traders used chat rooms with names like 'The Cartel,' 'The Bandits' Club,' and 'One Team, One Dream' to coordinate their activities. They agreed on the levels at which they would submit fix orders, shared information about client orders they had received, and 'netted off' opposing positions before the fix window. The 60-second window made it easy to move the market — a few traders acting together could push the rate in their preferred direction. The scheme was uncovered in June 2013 when Bloomberg News reported that currency dealers had been front-running client orders for years.
The regulatory response was unprecedented. In November 2014, UK and US regulators imposed $3.1 billion in fines on five banks. In May 2015, Barclays, Citigroup, JPMorgan, and RBS pleaded guilty to felony charges in the US, paying an additional $5.7 billion. Total fines exceeded $10 billion across 15 banks. The 4pm fix window was extended from 60 seconds to five minutes, banks were required to automate FX trading, and compliance systems were overhauled to monitor chat-room communications. The scandal permanently changed how the world's largest financial market is supervised.
They coordinated fix submissions in secret chat rooms, sharing client orders to move the 4pm fix; fines exceeded $10B and traders were convicted.
Traders at 15 banks shared client orders in chat rooms and coordinated fix submissions to profit from the 4pm benchmark — undetected for a decade because the fix was predictable and unmonitored
The WM/Reuters fix was based on a 60-second window that traders could move the market inside — a design flaw that made manipulation trivially easy once a few traders agreed to act together
Banks had no compliance surveillance of chat-room conversations among traders at different institutions, so the coordination was invisible to every control system
The fines, while large, were treated as a cost of doing business — no senior executive went to prison, and the same desks continued operating with the same culture
A benchmark that relies on voluntary submissions from the same traders it benchmarks is not a benchmark — it is a price-fixing cartel waiting to happen.
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