Moneyweb and Biznews have been exploding with news that the Competition Commission is investigating potential ZAR exchange-rate manipulation amongst some of the big banks.

From their media release on Tuesday:

The Competition Commissioner has initiated an investigation against BNP Paribas, BNP Paribas South Africa, Citigroup Inc., Citigroup Global Markets (Pty) Ltd, Barclays Bank Plc, Barclays Africa Group Ltd, JP Morgan Chase & Co, JP Morgan South Africa, Investec Ltd, Standard New York Securities Inc. and Standard Chartered Bank, (Respondents).

The Respondents who are traders in foreign currencies have allegedly been directly or indirectly fixing prices in relation to bids, offers and bid-offer spreads in respect of spot, futures and forwards currency trades in contravention of section 4(1)(b)(i) of the Competition Act no. 89 of 1998, as amended. The Commission’s investigation is focusing on trade in currency pairs involving the South African rand.


The alleged collusion the “ZAR domination” was carried out through electronic messaging platforms used for currency trading, which enabled the Respondents to coordinate their trading activities when quoting customers who buy or sell currencies. This coordination has the effect of eliminating competition among the Respondents, as it enabled them to charge an agreed price for a specific amount of currency.

Firstly: I’m entertained by the “ZAR domination” title.

Secondly: it sounds as though the forex traders contacted each other over skype and said “What u chargin? K, we chargin this. BNP as well. Also Barclys. Thoughts? Thought so. Kewl.”*
Because #fact – bankers cannot spell while they’re busily incriminating themselves over electronic messaging platforms.

For those who haven’t read the release – but who might have read the commentary from “independent traders” that all sounds a lot like “I can’t imagine the authorities would launch into this without a high chance of finding something” – there is this tagged on at the end:

The Commission’s investigation follows similar investigations launched by other competition authorities in other jurisdictions.

So it’s a bit of a fishing expedition (although I’m sure they’ll find something – nothing is ever spotlessly clean, and we are all of us sinners).

The SA Reserve Bank was quick to point out that this wasn’t their fault, issuing their own press release to say:

It is our understanding that such alleged instances of market misconduct took place in foreign jurisdictions and do not relate to actions that took place in South Africa.

Which does bring me back to an earlier post that I wrote about the ZAR market – where I pointed out that the last few years of depreciation have very little to do with SA politics and a whole lot more to do with global money flows and investor appetite for emerging markets (see The Rand Depreciation: Not Zuma’s fault. Come now.) Oh, and also the fact that a giant chunk of trade in the Rand does not touch South African shores (see SARB press release above).

The problem that I have is that many of us will read these headlines and assume that the depreciation/appreciation of the Rand against certain currencies is all just rigged.

But that’s unlikely to be true.

A graph:

Thanks Bloomberg and the RBA
Thanks Bloomberg and the RBA

Turkey, South Africa, Brazil – they’ve all been dancing down the value chain in relative tandem (although the Rand does seem to get low much quicker than that Real). So unless the forex traders are manipulating everything

But to be honest, the more important thing to point out is that forex traders don’t benefit from a particular movement in the rate so much as they benefit from a bigger difference between what they pay for a currency and what they sell that currency for.


Thanks this website
Thanks this website

That difference, between what banks “buy” at and what they “sell” at – that’s where the real profit is*. After all, in the forex trade – the bank is more of a market-maker than they are a trader. They might be a counter-party to a specific transaction – but overall, they’ll be hedging their foreign currency exposure to end up fairly neutral. So they’re mostly interested in earning a spread (you might call it the “commission” for bringing the buyer and seller of a particular currency together).
*And we’re talking real bid-ask spreads here – for business transactions – not the touristy ones that you find at Thomas Cook.

And just as a general observation, if I were a potentially-corruptible and semi-unscrupulous-by-some-standards forex trader, and the options were:

  1. Collude with other traders to charge higher effective commissions; or
  2. Try and manipulate the whole foreign currency market;

Then you can be sure that I’d be going with the easier option of number 1: trying to maximise the buy-sell (bid-ask) spread.

Also, that would be the type of engagement that you could easily accomplish in tweenage English over skype.

So as I see it, the Competition Commission isn’t really concerned with the actual forex rates so much as they’re concerned with the bid-ask spreads.

And in market-manipulation terms, that’s only a venial sin.

All that bad-spelling, however…

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at