UBS Curbs Employees’ Personal Foreign-Exchange Trades

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Rules Come as U.K. Authorities Investigate Personal Foreign-Exchange Trades

UBS Foreign-Exchange TradesSwiss lender UBS AG recently imposed rules further restricting the ability of certain employees to place personal trades alongside client transactions, amid investigations into potential improprieties in the foreign-exchange market, according to people familiar with the matter.

Until recently, currency traders in parts of UBS’s investment bank were given broad leeway to place trades for their personal accounts at the same time that they were trading on behalf of UBS or its clients, according to a person familiar with the matter and former traders. That contrasted with some of UBS’s biggest rivals, which years ago barred traders from doing such personal-account trades except under certain limited circumstances.

The practice of personal-account trading among currency traders is under scrutiny by British regulators, who are investigating potential manipulation of the foreign-exchange markets, according to people familiar with that investigation. Several large banks are in settlement talks with the U.K.’s Financial Conduct Authority, which is likely to fault them for, among other things, not preventing currency traders from improperly trading on their own accounts, these people said.

Last week, Barclays PLC, Citigroup Inc. and Royal Bank of Scotland Group PLC said they have set aside a total of about $2 billion to cover expected penalties stemming from the U.S. and British investigations.

UBS has said it is cooperating with regulators’ currency-manipulation probes, which got under way last year. In recent years, the Swiss bank admitted to playing a central role in the attempted manipulation of benchmark interest rates, and separately a rogue trader racked up about $2.3 billion in losses.

UBS’s tightened rules permit currency traders to carry out personal-account trades only when they are approved by managers and compliance staff, according to the person familiar with the matter. The trades must also be executed by preapproved brokers. UBS also relatively recently banned the use of mobile phones from its trading floors, this person said.

The former traders said such trades were sometimes designed to accompany or precede large orders from clients that were expected to move the markets. Traders quickly moved in and out of currencies, sometimes holding positions for less than an hour, the former traders said.

Personal trading is a thorny issue for banks, whose staff often need to exchange currencies just like anyone else, such as for vacations or overseas purchases. Currencies, unlike stocks, aren’t securities, so they aren’t covered by insider-trading rules.

But officials at other big banks say they have long imposed tough rules over how and when staff can place personal trades, although industry officials acknowledge that those rules might at times have been disobeyed.

Deutsche Bank AG for years has required traders to get clearance from their supervisor and compliance staff before doing personal-account transactions. Citigroup imposed similar rules several years ago. J.P. Morgan Chase & Co. has long required traders to get preapproval of any trade and discouraged them from trading asset classes for which they are responsible.

Former UBS traders say the bank previously limited the number of trades staff members could carry out and set minimum amounts of time for which they could hold those instruments. But traders otherwise were free to execute transactions on their work phones. Some traded in multiple personal accounts.

UBS’s recent rule change is the latest example of global investment banks instituting new policies in the wake of investigations into alleged market misconduct.

Like other major currency-dealing banks, UBS has banned traders from using electronic chat rooms that link them with traders at other firms. That marked a response to transcripts of the chat sessions playing prominent roles in investigations into alleged manipulation of currency markets and benchmark interest rates.

A total of about 30 traders at a dozen banks, mostly in London and New York, have been suspended or fired since the foreign-exchange trades investigation got under way. A first wave of settlements between regulators and banks could come as early as this month, people familiar with the investigation have said. U.S. and British prosecutors are also conducting criminal investigations.

Gary Beal