Traders rigged the $5T-a-day forex market — $10B+ in fines and chat-room convictions

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.