The SEC is probing deeper into the foreign-exchange trading activities
of big "custody" banks undertaken on behalf of institutional
investors, particularly public pension funds ("SEC Deepens Probe
of Forex Trading,"
Wall Street Journal, May 24, 2011).
As reported by the
WSJ, both Bank of New York Mellon Corp. and State Street Corp. are currently
under investigation by the SEC due to allegations that the banks misrepresented
the manner in which they would carry out foreign-exchange trades. A whistleblower
group has sued both banks, and claims that Bank of New York and State
Street have improperly priced currency trades for certain customers.
At issue is the fact that foreign-exchange trading typically does not fall
under direct SEC jurisdiction, because private agreements reached between
the banks and the banks' clients tend to give the banks wide discretion
over trading fees. The SEC is using its authority to investigate whether
the banks violated securities laws in executing the Forex trades to probe
into the banks' currency trading activities.