I must admit that even after many years of experience in the competition law field, I was stumped by the news that emerged earlier this month that the banks had colluded in forex trading. Usually it’s relatively easy to see the link between collusion and its impact on consumers but this time I’ve struggled to see how we, the people, have been affected – if at all.
Given what I should know, I’m embarrassed to say I have Eusebius McKaiser to thank for my still murky but better understanding of what actually happened between the banks and why we should care. McKaiser brought together the regulator, a trader and a commentator onto one platform to ask the relevant questions and get some much needed clarity on why we should be concerned about the currency collusion scandal.
So a number of traders working for about 17 global banks are accused, by the Competition Commission, of agreeing the terms for trading currency pairs – in our case the US dollar/rand currency pair – in ways that affected the currency prices in their favour. This has been happening since 2007.
The traders used different trading platforms, chat rooms, meetings and phone conversations, to co-ordinate their currency trades. They would agree to hold trades, refrain from trading, take turns in trading and, in that way, distort demand and supply enough to reach their desired currency prices and achieve their profit motives.
It seems the traders affected currency prices in specified spot or short-term transactions. They are accused of making money by actually intervening and manipulating currency prices in their favour rather than just speculating and betting on the movement of the US dollar/rand pair, as currency traders ought to do.
So all this begs a million questions that have everything to do with what the effect of the traders’ conduct actually was on South Africa’s economy and, more specifically, how this conduct affected you and me. Did these traders affect the rise or fall of the US dollar and the rand? How does currency manipulation succeed in a market of so many different traders? Is there a class of consumers that was directly affected by the currency manipulation and can they claim damages for this conduct? And do the answers to these questions matter at all?
For years the Competition Commission’s standard response to these types of questions was that they didn’t have to determine the effect of collusion on a market because the law didn’t require it.
What the law required was for the commission to prove that (1) there was an agreement; (2) between competitors; (3) to fix a price or a trading condition. Whether that agreement actually led to a hike in price or dip in quality did not have to form part of the commission’s argument when prosecuting alleged colluders in the Competition Tribunal, which adjudicates these matters.
We could, however, be waiting a long time for anybody to work this out because determining the true impact of collusion is a notoriously difficult exercise. Even in the commission’s bread cartel investigation it was difficult to say what the competitive price of bread would have been had the manufacturers not colluded – even armed with the knowledge that the manufacturers agreed to increase the price of bread by 30 cents per loaf during the 2006 December period. This difficulty in determining effect has been clear in the sheer length of time it has taken for the bread class action to come to a conclusion.
However, in the wake of loud calls to revoke bank licenses, nationalise the banks and calls to make the banks pay back the money, I think this time the commission should take their findings to their logical conclusion and tell the public how they believe the currency manipulation affected the South African economy.
Doing so would help South African’s understand the impact of collusion and facilitate an informed and responsible conversation about the state of our banking system.
Ultimately, I believe, it would help the commission’s cause to stay relevant in the minds of ordinary consumers.
Nandi Mokoena is an admitted attorney with 15 years’ experience in the field of competition law. She has worked in various roles within the Competition Commission.
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