Deutsche Bank, HSBC fined for collusion
By Yoon Ja-young
Martin Tricaud HSBC Korea CEO
Park Hyun-nam Deutsche Bank Seoul manager
The nation’s Fair Trade Commission (FTC) levied penalties on branches of Deutsche Bank and HSBC here for colluding in foreign exchange swap bidding. This is the first time for the anti-trust regulator to uncover and penalize unfair practices in the foreign exchange derivatives market.
According to the FTC, sales staff at the two banks’ offices in Seoul participated in the foreign exchange swap bidding requested by a Korean manufacturing company in 2011.
In a foreign exchange swap, two currencies are swapped at the current spot rate. Then, the currencies are swapped again after a certain period, at the forward rate set at the beginning of the contract. Local companies often use swaps to hedge against foreign exchange risks.
At the request of the customer company, the bank suggests its foreign exchange swap price, adding a margin to the trading price. It determines the margin considering the customer’s sensitivity to price and competition with other banks.
Customer companies get swap prices from more than one bank and then pick the best offer.
The manufacturing firm cited by the FTC had the banks bid for $88 million in foreign exchange swaps between January 2011 and February 2012, which was to be rolled over every few months.
The staff at the two banks agreed through a messenger that they would avoid price competition. They agreed to take turns to win the bids, with the one offering a higher price than the other that was set to win. For instance, in the bidding for June 2011, Deutsche Bank offered a slightly higher price than the price offered by HSBC, so that HSBC could win. They continued colluding in four bids until December 2011.
“There was another bank which participated in the bidding, but it didn’t collude with the two,” an official in charge of cartel investigation said.
The FTC concluded that they violated the FTC Act by hindering fair competition in the market, and fined Deutsche Bank 13 million won, and HSBC 46 million won.
“The FTC will continue examining the market and the banks to root out unfair practices related with foreign exchange derivatives services,” the official said.