New york state department of financial services in the

Pdf File 10,180.74 KByte,




?- ----------------?-?-----


The New York State Department of Financial Services (the "Department"), Standard Chartered Bank, and Standard Chartered Bank, New York Branch (together, "Standard Chartered" or the "Bank") are willing to resolve the matters described herein without further proceedings.

WHEREAS, Standard Chartered is a global financial institution headquartered in London, England, and is part of the Standard Chartered group that that employs approximately 86,000 people worldwide, with total assets of more than $663 billion;

WHEREAS, Standard Chartered (or a predecessor entity) has been licensed by the Department to operate a foreign bank branch since 1976 (the "New York Branch"). As of December 31, 2018, the New York Branch has assets in excess of $40 billion;

WHEREAS, the Department has been investigating Standard Chartered's foreign exchange ("FX") business;

WHEREAS, the Department and Standard Chartered are willing to resolve the matters described herein without further proceedings. The Department hereby finds as follows:


I. As part of its broad investigation of the foreign exchange markets, the Department has been investigating Standard Chartered's foreign exchange trading business (the "Investigation"), including obtaining tens of thousands of pages of documents from the Bank, and additional relevant information from third-party sources.

2. The Department's Investigation determined that Standard Chartered engaged in unsafe, unsound, and improper conduct in violation of New York laws and regulations. The misconduct arose from the Bank's failure to implement effective controls over its foreign exchange business.

3. Standard Chartered traders used a variety of improper tactics to benefit the Bank and themselves - by maximizing profits or minimizing losses at the expense of the Bank's customers or customers of other banks that were impacted by the misconduct. This improper conduct was accomplished using chatrooms, e-mail communications, phone calls, and in person meetings. Misconduct included:

a. coordinating trading and spreads with colleagues at Standard Chartered and other international banks to disadvantage customers;

b. seeking to manipulate submission-based and trading-based benchmarks; c. sharing confidential customer information (including customer stop-loss

orders) with competitors; d. trading intended to move prices in certain emerging market currencies, to the

Bank's benefit and the customers' detriment; and e. engaging in non-competitive agreements among traders on prices and spreads

offered on a variety of FX-related products.


4. The Department's Investigation demonstrated that Standard Chartered traders based at the New York Branch and in other major trading hubs engaged in these actions repeatedly during the period from approximately 2007 through 2013. The FX Market and Standard Chartered's FX Business

5. The FX Market: The foreign exchange market is one of the largest and most liquid markets in the world. The market is centered on "spot" transactions, i.e., the exchange of national currencies between two counterparties typically settled within two business days. A spot dealer often quotes its customer both a "bid" (the price at whi<;;h it will buy a currency) and an "ask" (the price at which it will sell). The difference between a bid and ask is known as the "spread."

6. The quoted spread plays an important role in a customer's decision whether to place an order with a particular dealer. Dealers seek a wider spread, i.e., to buy low and sell high, while customers pursue a narrower spread. The narrower the spread offered, the more competitive the price, and if a spread is too wide a customer may select another bank offering tighter spreads. By quoting narrower spreads than competitors, dealers can win customer business and gain market share.

7. The global FX market is active 24 hours per day. To facilitate information flow and certain types of trading, industry organizations regularly publish snapshots of market prices taken at set times each trading day, known as "fixes" or benchmarks. Some fixes are calculated by sampling actual completed trades during a designated short time period; others, especially those for less liquid currency pairs, are calculated using indicative quotes solicited by the benchmark publisher from market participants.


8. Some customers wish to place buy or sell orders "at the fix price," meaning the customer and dealer agree to transact at the future fix rate. Upon accepting a fix order, the dealer is committed to trading with the customer at whatever fix price is eventually published. By taking these orders to transact at a rate that will only be determined later, banks take on risk by exposing themselves to exchange rate movements. 1

9. Standard Chartered's FX Business: Standard Chartered conducts FX trading operations in a number of locations around the world including New York, London and Singapore. During the period of approximately 2007 through 2013, Standard Chartered's average share of the global FX market was approximately one percent.2

10. For the period 2008 through 2013, the Bank booked, settled, and cleared between approximately 340,000 and 929,000 trades through the New York Branch for its global FX business annually. Further, for the period 2008 through 2013, the number of New York-based clients that generated FX revenue for the Bank (in excess of a de minimis amount) averaged approximately 300 each year. For the period 2008 through 2013, New York-based business generated between approximately 5.7 percent and 7.49 percent of the Bank's global FX revenues.

11. During the relevant time period, Standard Chartered offered both "voice" trading - currency trading conducted by salespeople and desk traders using telephone or electronic communications - as well as "electronic" trading, where customers accessed Standard

1 One type of fix is calculated each day based on a sampling of real trading activity completed during a predetermined and usually short window of time. For spot trading, the most widely used benchmarks are the WM/Reuters fix ("WM/R" fix, occurring every business day at 4:00 p.m. London time) and the European Central Bank fix ("ECB" fix, occurring every business day at I: 15 p.m. London time). FX traders may buy or sell currency close to the "fix window" in order to manage their exposure to this risk and obtain a currency position large enough to complete the client's order. 2 Euromoney FX Surveys: 2007-2013.


Chartered's trading services directly via sophisticated computer applications. The Department's investigation reviewed both voice and electronic trading at the Bank, and the misconduct identified herein relates only to the Bank's voice FX trading business. Standard Chartered's Unsafe, Unsound, and Improper Conduct

12. Between approximately 2007 and 2013, Standard Chartered engaged in unsafe, unsound and improper conduct through the conduct of a number of its employees engaged in its FX business. The inappropriate conduct was designed to improve the Bank's profits, and their own compensation, at the expense of the Bank's customers, competitors, and the market ~s a whole.

13. The Bank's conduct was not limited to a single group of traders, a single office, or a single product; a number of Standard Chartered traders and salespersons engaged in improper conduct involving an assortment of currencies and products, ranging from straightforward spot trading to certain forwards contracts.

"Old Gits" Chat Room: Efforts to Improperly Coordinate Trading 14. For the period of approximately September 2007 and April 2014, Standard Chartered traders based in New York joined traders at other international dealers in a chat room called "Old Gits." Participants in Old Gits specialized in trading emerging markets currencies, which tend to be less liquid than those for the most popular currencies, known as "GI O" currencies. Due to diminished liquidity and trading volumes, some emerging markets currency prices may be more susceptible to manipulation by coordinated trading. 15. The Old Gits chat room was formed among these traders (among other reasons) to coordinate trading, share confidential information and otherwise attempt improperly to affect FX


prices. Long-time participants in Old Gits included at least three traders employed by Standard Chartered.

16. Descriptions by members early on in the work of Old Gits included comments by a New York-based Standard Chartered trader, Trader 1, who referred to the group as "mafia"; another member cal led the OId Gits group "a cartel," "like OPEC but poorer." And a trader at another global bank, Trader 2, explained to another, newer member that the group essentially was "a den ofthieves."

17. To ensure its success, existing members of Old Gits carefully controlled who would be admitted to membership. This caution was reflected, for example, in an April 2008 discussion where Trader 3, a trader at another global institution,3 discussed the merits of adding a certain prospective new member by noting that he "is a good guy but can you trust [a large European bank]? ... And does it make this [chat room] too big?" Another Standard Chartered trader, Trader 4, weighed in that he was "not fond of [the large European bank]." In the end, the group declined to add this new trader but one Old Gits participant offered to start a one-on-one chat with the rejected trader, presumably to source information from him.

18. Traders in Old Gits used the chat room to coordinate trading activities and attempt to improperly affect FX daily benchmark prices. For example, in a November 2007 chat, Trader 2 informed the group that he had booked a customer's U.S. dollar/Thai baht (abbreviated "USD/THB") trade that would be priced at the upcoming WMR fix, scheduled to be published at 11 :00 a.m. local time. Trader 5, a trader at another global bank, responded, "we can make that hi, we all just update screens at 32.00." In other words, the group would be able to affect the

3 Trader 3 pied guilty to a one-count information in the U.S. District Court for the Southern District of New York, charging conspiracy to restrain trade in violation of the Shennan Act (15 U.S.C. ? I) for conduct carried out during the same time that the Old Gits chat room was active. See U.S. v. Katz, 17-CR-003 (S.D.N.Y. Jan. 4, 2017).


Download Pdf File