FTC fines foreign banks for price fixing on FX derivative products

Korea’s antitrust body said Sunday it will fine four foreign banks 693 million won ($615,500) for price fixing on foreign exchange derivative products.

The Korea Fair Trade Commission (FTC) said it will fine the local branches of Deutsche Bank, JP Morgan Chase and HSBC, as well as Standard Chartered Bank Korea, for making price arrangements with one another on foreign exchange derivatives on seven occasions from March 2010 to February 2012.

Foreign exchange derivatives, which include cross currency swaps, are contracts to buy or sell foreign currencies at a future date.

The FTC said that the banks made price agreements so that when a client conducted transactions with multiple banks, they offered similar or identical prices.

Deutsche Bank, HSBC and JP Morgan Chase sold cross currency swap products each worth 10 billion yen ($91.1 million) to an unnamed Korean company on May 4, 2010.

The German bank originally offered the client a rate lower than 4.28 percent, more favorable than those offered by other banks. The bank, however, raised its rate to 4.28 percent after making an agreement with HSBC and the final transaction price was 4.30 percent.

They also offered favorable pricing for a certain bank when the client sought a transaction with a single bank by intentionally providing disadvantageous pricing, according to the FTC.

Deutsche Bank provided unfavorable or similar pricing to those provided by HSBC and Standard Chartered multiple times to ensure that the two banks sold their products.

On Feb. 23, 2012, HSBC sold dollar/won foreign exchange forwards worth $52 million by making an agreement with Deutsche Bank.

The agreements were intended to raise prices and reduce competition.

Sales employees of the banks made price agreements when a client approached the banks on a transaction. The employees shared information by messaging apps or phone calls, according to the FTC.

The four banks were ordered by the FTC to take preventative measures to restrict price information sharing. JP Morgan Chase was fined 251 million won, HSBC 225 million won, Deutsche Bank 212 million won and Standard Chartered Bank Korea 5 million won.

The FTC said it expects the fines to encourage competition between the banks and create internal measures to control bank sales employees.

Korea’s foreign exchange derivatives market has grown steadily over the years.

The daily average transaction size of foreign exchange derivatives was $31.0 billion in 2017, a 7.2-percent increase from the daily average in the previous year. Foreign exchange derivative transactions conducted through local units of foreign banks accounted for 55.3 percent of the total in 2017.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]