The foreign exchange (FX) market is one of the highest-volumemarkets in the financial world; annualized FX trading equates to anastounding 13 times global GDP. Multinational corporations are,necessarily, major participants in the FX market. In order to hedgetheir currency risk, these companies trade large volumes ofFX-based derivatives. However, the playing field for these tradesis often tilted in favor of their banking partners.

Multinational corporations usually obtain FX derivatives frombanks through over-the-counter (OTC) trading. The unregulated OTCderivatives market generally offers companies the best selection ofinstruments, but a series of scandals in which banks have beencaught gaming various OTC markets indicates that caution isappropriate.

In 2011, the Bank of New York Mellon was sued by both the NewYork attorney general and the United States attorney general inManhattan for routinely overcharging customers in the processing ofFX transactions. The AGs claimed that the bank defrauded clients ofmore than $2 billion. In the same year, State Street Bank was suedby several state pension funds and investigated by the SEC forsimilar allegations. A year later, it was determined that many ofthe largest banks were gaming LIBOR (the London Interbank Offered Rate), whichunderpins $350 trillion in derivatives. Some were found guilty andfined, including Barclays ($200 million) and UBS ($1.5billion).