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US stock market daily report (July 21, 2014, Monday)

July 21, 2014, Monday, 23:51 GMT | 18:51 EST | 04:21 IST | 06:51 SGT
Contributed by Millennium Traders


The Serious Fraud Office - an anti-fraud agency in Britain - announced the launch of a criminal investigation into alleged rigging of the $5.3 trillion-a-day Forex market. The SFO said in a statement, "The director of the Serious Fraud Office has today opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market." David Green CB QC is current director of SFO. The investigation is targeting currency chat rooms - the Bandits’ Club, the Dream Team and the Cartel - accused of manipulating benchmark forex prices. Individual traders will be investigated as to their personal benefits while participating in these rooms. The scandal could provide an explanation for short-lived market moves allegedly coordinated from the electronic chat rooms mentioned.

Eric Holder, the U.S. Attorney-General, recently remarked that the manipulation in question “may be the tip of the iceberg” and said that this could be “an extremely consequential investigation.”

The alleged misconduct or the most popular 'fix' occurs around 4:00pm London time. Currency 'fixes' are the times of day when the benchmark exchange rates are calculated. Data is gathered on trading rates during a 60-second window to produce a median price, which forms the basis of each day’s benchmark exchange rate. The resulting rates, calculated by World Markets Co. PLC, are used by scores of investors around the world to value their portfolios or by companies to account for cross-border transactions.

The alleged currency chat rooms targeted use instant messages to correspond with traders at banks who reportedly shared information about the flow of orders leading up to the fix. The FX traders then carry out their own trades prior to it - an illegal practice known as 'front running'. The FX traders involved supposedly worked together to push FX trades through during the benchmark-setting window in an attempt to move the daily rate up or down.

Following the announcement of the investigation, several major banks are considering restricting the use of electronic chat rooms, for their FX trader divisions. In reference to the alleged manipulation, banks such as Barclays PLC (BCS), Citigroup Inc. (C), Deutsche Bank AG (DB), JPMorgan Chase & Co. (JPM) and Lloyds (LLOY) have fired or suspended - and in some cases reinstated - foreign exchange traders in the discourse over alleged manipulation.

The Serious Fraud Office is an independent government department, operating under the superintendence of the Attorney General. Its purpose is to protect society by investigating and if appropriate, prosecuting those who commit serious or complex fraud, bribery and corruption plus, pursuing those for the proceeds of their crime.

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