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Deutsche, Citi feel the heat of widening FX investigation

By Jamie McGeever

LONDON (Reuters) - Global investigations into alleged currency market manipulation intensified on Wednesday as U.S. regulators descended on Citigroup's London offices and Deutsche Bank suspended several traders in New York, sources told Reuters.

The presence of Federal Reserve and Office of the Comptroller of the Currency officials at Citi's Canary Wharf office in the east of London this week comes after Citi last week fired its head of European spot foreign exchange trading, Rohan Ramchandani, following a prolonged period on leave, one source familiar with the matter said.

The suspensions of staff at Deutsche Bank in New York and possibly elsewhere in the Americas followed investigations into "communications across number of currencies," a second source said.

These are the latest developments in the worldwide investigation into allegations that traders at some of the world's biggest banks colluded to manipulate the largely unregulated $5.3 trillion-a-day foreign exchange market, by far the world's biggest.

Deutsche and Citi are the two biggest players in that market, accounting for a combined 30 percent of that turnover, according to a Euromoney magazine poll. Deutsche has been the biggest FX bank for nine years running.

The Fed and OCC officials visiting Citi in London are at the "preliminary stage" of information-gathering and their presence is "independent" of Ramchandani's sacking, the first source added.

The OCC is an independent regulatory and supervisory bureau of the U.S. Treasury supervising nationally chartered banks, while the Fed oversees the holding company. Both declined to comment on the investigation.

An OCC spokesman said the OCC has an office in London to support its large bank supervision team there, so it would not be surprising that they have people visiting London branches of U.S. banks.

In addition to having the London office, the OCC will often augment a team at any one office with teams from elsewhere with particular expertise, he added.

Citigroup, Deutsche Bank and Britain's financial watchdog, the Financial Conduct Authority (FCA), declined to comment.

A third source familiar with the investigation said the British regulator was aware of the operation at Citi.

"HUNDREDS" COULD BE IMPLICATED

In October last year, the FCA began a formal investigation and the U.S. Justice Department confirmed it was actively investigating possible manipulation of the global FX market.

The FCA is focusing on around 15 banks, whom it has asked for - or required to provide - information about currency trading activities.

Although several traders at several banks have been suspended or put on leave, Ramchandani is the highest profile departure to date. Ramchandani could not be reached for comment.

The investigations centre on senior traders' communications in electronic chatrooms, which also featured prominently in a five-year probe into the rigging of a key interest rate known as the London interbank offered rate, or Libor.

The Libor scandal has already cost banks $6.0 billion in settlements and seen the first suspects brought to court.

In an effort to avoid the further wrath of authorities, global banks such as Citi, Deutsche, JP Morgan, UBS, and Goldman Sachs have curtailed the use of chatrooms.

Traders at banks and other financial institutions often communicate with each other via third-party services including those offered by Bloomberg LP and Thomson Reuters Corp., the parent of Reuters News.

Groups of senior FX traders on Bloomberg chatrooms, known by names such as "The Cartel" and "The Bandits' Club", are alleged to have shared market-sensitive information surrounding the popular benchmark currency rate known as the London "fix".

This is the WM/Reuters "fix", which is set at 4 pm London time, using actual trades and order rates from Reuters and rivals such as EBS during a 1 minute "fix" period. WM, a unit of State Street, calculates the benchmark using the median of the trades and the orders.

The WM/Reuters FX rates are used by investors and corporations looking for a rate to price their portfolios and currency holdings. Most of the main equity and bond index compilers also use the rates in their calculations.

Another source familiar with the investigation told Reuters in New York that "hundreds" of traders around the world were potentially engaging in these practices.

(Reporting by Jamie McGeever, additional reporting by Aruna Viswanatha in Washington, Emily Flitter in New York, Kirstin Ridley in London, editing by Mike Dolan, Alex Smith and Louise Heavens)

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