Many traders involved in ‘shenanigans’ – but not rand manipulation

Many financial institutions engage in “shenanigans” similar to the alleged rand manipulation by big banks. However, they do not actively collude at a high level to influence the price of assets in an illegal manner. 

This is the view of economist Dawie Roodt, who told SAfm that the Competition Commission engaged in a complete overreach in pursuing rand manipulation allegations against some of the country’s biggest banks. 

Roodt made these comments in response to the Competition Appeals Court (CAC) dismissing the Competition Commission’s case against 23 of the 28 banks accused of manipulating the rand-dollar exchange rate.

The ruling, therefore, dismissed the claims against Standard Bank, Nedbank, and FirstRand.

This leaves just Investec and the four foreign banks whose traders pleaded guilty to charges brought by the US Department of Justice years ago.

Investec remains in the case because it did not join the application to the CAC to prevent the case from going ahead.

The CAC dismissed the charges against some banks and financial institutions for various reasons.

This included a lack of jurisdiction to prosecute some international banks and an incorrect attempt to prosecute holding companies not involved in the alleged trades. 

In addition, some charges were dismissed for lack of evidence, with the court stating the commission should have been more thorough in setting out its case.

Roodt said that while the banks as a whole had the case dismissed, it is probable that individual traders engaged in misconduct in trying to manipulate the rand. 

He explained that individual traders have a strong incentive to earn a commission on the value of their trades and to, therefore, engage in such conduct to maximise their personal benefit. 

“I am sure these sorts of shenanigans are going on with many other financial institutions and still continue. But, I am absolutely convinced that the big banks and big asset managers do not collude at a management level,” Roodt said. 

He added that for such large institutions, it is not worth the risk of taking illegal action to slightly increase the profitability of some trades.

A handful of traders may occasionally engage in such actions but not on the scale of an entire bank, with the directive coming from executives or management. 

“To think that the big banks and big financial institutions are intentionally trying to undermine the economy or make money illegally is farcical. I am sure that it is not happening,” Roodt said. 

He said that financial institutions in South Africa, and particularly the big banks, are tightly regulated and are extremely well managed. 

TreasuryOne director and currency risk strategist Andre Cilliers explained when the allegations against the banks were made public last year that it is nearly impossible to manipulate the currency on the scale alleged by the Competition Commission. 

Like Roodt, Cilliers said that currency manipulation is often associated with significant transactions, such as mergers, acquisitions, large export deals, or capital transactions. 

In these cases, collaboration between banks can lead to manipulating bids and offers in the market at a specific time. 

However, he said it is crucial to differentiate between short-term transaction flows and the broader economic fundamentals and global situations that influence currency direction over the long term.

He explained that banks manipulated the rand’s value in a bid-offer spread – the difference between the buying and selling prices of a currency. 

Manipulating this spread during big-ticket deals can be a strategy banks employ to enhance their outcomes, whether acquiring or selling currencies. 

“When you manage a big-ticket deal, and there’s collaboration between banks, that would mean that they manipulate the bids and the offers going into the market at a specific time,” he explained.

He emphasised that this tactic is limited to ‘big ticket deals’ – a big deal going through because of a merger and acquisition, a big export deal or a capital transaction of some nature – and cannot impact the long-term value of the rand.

“We must distinguish between transaction flows that go through daily and where the direction of the currency is heading in terms of economic fundamentals, political situations throughout the world, etc.”