New York regulators have found evidence that Barclays Plc andDeutsche Bank AG may have used algorithms on their tradingplatforms to manipulate foreign-exchange rates, a person withknowledge of the investigation said.

The practice suggests there may be a systemic problem involvingautomated tools that goes beyond individuals colluding to rigcurrency benchmarks and take advantage of less sophisticatedclients.

The algorithms' use is being scrutinized by the New YorkDepartment of Financial Services, said the person. Theinvestigators are looking into the practice at each bank and itisn't clear if there's a link between the two, according to theperson, who asked not to be named because the matter isn't public.The algorithms were embedded in Barclays's BARX trading platformand Deutsche Bank's Autobahn system, according to the person.

The two services provide electronic marketplaces for the banks'customers to trade currencies. Rather than directly matching oneclient's buy order with another's request to sell, the systemsaggregate all requests from the banks' clients to create pricesthat are displayed to customers. The banks profit from the spreador the difference in the price at which currency is sold andbought.

Autobahn, which is offered to Deutsche Bank's companies andinstitutional investors, was ranked top in a market-share survey byEuromoney magazine earlier this year. BARX allows customers totrade more than 80 currencies, according to the London-based bank'swebsite.

Barclays was up 0.2 percent at 238.10 pence at 10:48 a.m. inLondon trading while Deutsche Bank was up 1.3 percent to 25.68euros in Frankfurt.

Deutsche Bank and Barclays weren't among the six firms thatagreed to pay $4.3 billion to U.S., U.K. and Swiss authorities lastmonth in the first settlements in the global probe. London-basedBarclays dropped out of negotiations on the eve of theannouncements after DFS Superintendent Benjamin Lawsky balked,viewing the penalties as too lenient, people with knowledge of thetalks said at the time.

Bank Monitors

Lawsky, who is investigating about a dozen banks, has ordered amonitor to be installed at Deutsche Bank and already has one inplace at Barclays. Renee Calabro, a Deutsche Bank spokeswoman,declined to comment, pointing to an earlier statement on the firm'scooperation with the probes.

Caitlin Ferrell, a spokeswoman for Lawsky's office, declined tocomment, as did Mark Lane, a spokesman for Barclays.

Royal Bank of Scotland Group Plc, HSBC Holdings Plc, CitigroupInc., JPMorgan Chase & Co., UBS AG and Bank of America Corp.were part of the Nov. 14 settlements with authorities including theU.K. Financial Conduct Authority, the U.S. Commodity FuturesTrading Commission, Office of Comptroller of the Currency and theSwiss Financial Market Supervisory Authority. Criminal andantitrust authorities are continuing to investigate practices inthe foreign-exchange market.

When the settlements were announced, the FCA said it orderedabout 30 other banks, including Deutsche Bank, to overhaul theirpractices. The FCA isn't planning to fine those firms.

Citigroup, Deutsche Bank, Barclays and UBS are the top fourcurrency dealers, according to Euromoney Institutional InvestorPlc.

Bloomberg

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