Business Practices

Sources: Banks weigh banning chat rooms after rigging probe

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Big banks are considering banning traders from some online chat rooms in response to investigations into alleged collusion between dealers over key financial market benchmark rates, people familiar with the matter said on Monday.

JPMorgan Chase, Credit Suisse and Citigroup, among others, are reviewing chat room use over concerns that some of those forums are seen by regulators as potential venues for collusion and market manipulation.

The banks are targeting so-called multilateral chat rooms, in which many dealers participate at the same time. Bilateral communications between individual traders and their counterparts at other banks, and between traders and their clients, are not under review, the sources said.

(Read more: UK whistleblowers could get US-style payouts)

What Are the Alternatives to Libor?

Regulators and investors are concerned about the integrity of financial benchmarks after investigations into the rigging of a key interest rate known as the London interbank offered rate, or Libor, which has already cost banks billions of dollars in settlements.

A global probe into alleged currency manipulation is focusing on chat rooms with names such as "The Cartel," in which traders from many of the big banks are alleged to have colluded to manipulate foreign exchange (FX) rates, the Wall Street Journal reported earlier.

Chat room access

Chat communications featured prominently in a five-year probe into Libor. The probe into alleged FX rigging only surfaced in June but has snowballed in recent weeks, with regulators from the United States, Switzerland and Britain confirming they are investigating.

"Every bank is looking at this issue, you'd be crazy not to be," said one source.

(Read more: RBS Hit by $612 Million Fine on Libor Scandal)

He said removing access to chat rooms, where traders from a number of banks communicate with each other online via third-party services including Bloomberg and Thomson Reuters, has been under consideration for months, pre-dating the currency allegations which centre on the so-called London fixings and which first surfaced in June but snowballed in October.

"It goes back to Libor," he said.

(Read more: How could Libor regain credibility?)

The key foreign exchange rates, WM/Reuters, are compiled using data from Thomson Reuters and other providers, and are calculated by WM, a unit of State Street. Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.

The WM/Reuters rate set at 4pm London time is considered the benchmark by many companies and investors because more than 40 percent of daily FX trading is done in London. It is the nearest thing to a closing price in a 24-hour, self-regulated market.

JPMorgan, Citi, RBS, Credit Suisse, Barclays and Thomson Reuters all declined to comment. Bloomberg and UBS were not immediately for comment.

—By Reuters.