By Chiara Albanese
A few isolated traders are responsible for the foreign-exchange
scandal that is costing banks billions in fines, the central banker
tasked with helping to restore confidence in the market said.
"The foreign-exchange probe was caused mostly by misbehavior"
around a key benchmark, said Guy Debelle, assistant governor of the
Reserve Bank of Australia and chair of a group led by central banks
set up to devise a global code of conduct for the industry.
The way the WM/Reuters fix was set "was a long way from being
the root of the problem," he said in an interview with The Wall
Street Journal on Tuesday. The WM/Reuters fix, the most widely used
foreign-exchange benchmark, is set daily at 4 p.m. in London by a
unit of U.S. bank State Street Corp. and has been at the center of
a long-running investigation into traders' alleged manipulation of
foreign-exchange rates.
As part of that probe, four big banks are expected to plead
guilty to rigging forex rates and agree to pay billions in
penalties in the U.S. as early as next week, according to people
familiar with the matter. The fines follow the $4.3 billion
settlements between some of those banks and authorities in the
U.S., Europe and Switzerland at the end of last year.
Mr. Debelle is leading a task force announced Monday by the Bank
for International Settlements to define guidelines for behavior
across the scandal-plagued currencies industry.
The forex task force's recommendations will include rules on
trading types such as stop losses, high-frequency trading and
algorithmic trading, which Mr. Debelle says have shown suspicious
patterns.
"It would make sense to make sure that those behaviors are
specifically addressed," he said.
One of the key challenges will be to find common ground on the
so-called last-look practice, he said, which allows banks to change
the prices at which they conduct trades after clients already have
agreed to them.
"There are differences of opinion on that," Mr. Debelle
said.
The group's nonbinding recommendations, expected to be released
in the next year, would apply to banks, asset managers and firms
involved in the trading infrastructure for currencies.
"Banks have wanted a single code for a long time," he said.
"They realize the need that something has to happen [to restore
confidence]," he said.
The initiative has received early signs of support from the
banking sector.
"There is clearly a very strong industry desire for coordinated
alignment of the regional codes of conduct, encompassing all market
participants," said James Kemp, managing director of foreign
exchange at the Global Financial Markets Association, which
represents 24 banks active in the industry. "This is an opportunity
for market participants to...put the right controls and guidance in
place," he said.
A code of conduct should detail the extent to which information
sharing is or isn't allowed, said Benedict K. Cheng, managing
consultant at forex-industry advisory GreySpark. "The behavior of
the market participants should be the focus of any new industrywide
code of conduct, " he said.
Write to Chiara Albanese at chiara.albanese@wsj.com
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