Picture: ISTOCK
Picture: ISTOCK

The exceptions application hearing underway before the Competition Tribunal in Pretoria on Wednesday concerning the alleged manipulation of the rand by a consortium of local and international banks provided a clear indication of where the battle lines will be drawn, if and when the tribunal hearing to consider the case goes ahead, as anticipated.

Twenty-three banks have been accused of acting in a cartel-like fashion, contrary to competition law, over a six-year period from 2007 to 2013. The hearing under way is a necessary precursor to the main event that is due to begin later this year. While it is fundamentally technical in nature, the representations made by Advocate Tembeka Ngcukaitobi on Wednesday on behalf of the Competition Commission provided insight on some of the subtleties and substance that will likely be argued at a later stage.

Ngcukaitobi described how the use of instant messaging chatrooms, such as those provided on Reuters and Bloomberg terminals, were central to the "conspiratorial" nature of the manipulation of the $51bn daily market in the dollar-rand currency pair.

Similar to a Whatsapp chatroom, Ngcukaitobi described how an administrator of the chatroom grants access to participants that, in this case, included the 32 traders involved in the alleged currency manipulation. "The instant messages are visible to all in the chatroom, whether you engage in the conversation or not, and each trader can communicate bilaterally or multilaterally. So just by joining the [proverbial] ‘smoke-filled chatroom’ they were party to what was going on — the conspiracy."

Ngcukaitobi went on to state what he argues was posted in these chatrooms, which included information on past and future trades; speculation regarding the direction of the market; what bids or offers were made; what trades were successful; as well as the trading strategy, identities and positions of clients, including whether they had spread their trades across institutions. The activity in these chatrooms, "is a type of international cartel occurring on the platform".

This is highly likely to be disputed by the banks. Many of the instant messaging services are used as a means to trade with each other. As opposed to being a purely vertically structured market where the banks act as intermediaries for individuals and institutions and compete for the flows from these clients, in many cases the nature of the market is horizontal, where banks trade with one another. To do this for the volumes required, they need to communicate with one another and this is where the chatrooms have been utilised.

Picking apart exactly what happened in these chatrooms, who knew what and when, and who acted in concert or failed to act, will be central to determining whether this behaviour impacted the efficient functioning of the currency market to the detriment of its participants and the broader economy.