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HSBC has suffered another setback over allegations that it manipulated foreign exchange markets, after a British judge ordered the bank to hand over records requested by a client who suspects it was a victim of “front-running” by the bank’s traders.
As Judge Waksman QC ruled in favour of ECU Group, a UK-based currency investment company, he said its suspicions were supported by the recent conviction for fraud in a US court of Mark Johnson, the former global head of forex cash trading at HSBC.
The judge said: “Having taken into account all the various factors, I consider that in my discretion, there clearly should be pre-action disclosure in respect of the categories positively indicated above.”
At the time of ECU’s 2006 forex trades, the company suspected it was being ripped off by HSBC traders “front running” its forex orders. When it complained, the bank promised a full internal inquiry, only to report back that it had found no wrongdoing.
Although ECU was convinced it was a victim of foul play by the way the market appeared to systematically move against it within minutes of each large order it placed, the company was persuaded by the bank to let the matter drop.
However, it decided to return to the fray after the US Department of Justice charged two of HSBC’s top forex traders with “front running” a different client’s trade last year. Following last month’s conviction of Mr Johnson, his former colleague Stuart Scott now faces extradition from the UK to the US to be tried on similar charges.
ECU is asking for HSBC’s interbank dealing tickets, deal log entries and any relevant Bloomberg instant messages for the three trades, including those of its London and New York proprietary trading desks.
It is also seeking all documents relating to the internal inquiry carried out by the bank to investigate ECU’s original complaint. The judge said HSBC had indicated it was only possible to recover trading data on one of the deals that was held in its UK records. HSBC declined to comment.
ECU said HSBC had “put every conceivable hurdle in our way in our quest for this disclosure, making the process as difficult, protracted and expensive as possible”.
It added: “We therefore welcome today’s ruling and look forward to finding the truth behind the handling of our FX orders, so that we can determine whether we have been a victim of fraudulent misconduct by HSBC.”