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Deutsche Bank London fined for forex deals that caused forint to weaken

Hungarian financial market regulator PSzÁF said it fined Deutsche Bank AG London (DBL) HUF 90 million for forex deals that caused the forint to weaken sharply in October 2008.

PSzÁF established that DBL concluded a high volume of spot HUF forex transactions on October 15, 2008, causing a significant weakening of the EUR/HUF spot exchange rate. At the same time, DBL strongly urged its forex linked swap counterparties to close-out the swap positions with high profits to DBL by making increased margin calls with reference to increasing counterparty risk.

In its client statement, DBL stated that it hedged the foreign exchange swap transactions, and any profit to be made on such swap transactions would be significantly offset by any loss incurred in its hedging. DBL is of the view that the transactions on October 15, 2008 were induced by genuine and justifiable reasons, and that it strove to minimize the possible market impacts when executing them, PSzÁF said. According to DBL, these transactions had the aim of managing the risks deriving from the unforeseeable market turbulence and were executed with considerable care as well as in line with the best market practices.

PSzÁF said it did not accept DBL's reasoning and had established that the risk management needs originating from the existing foreign exchange linked swap positions did not justify the sale of spot HUF on the foreign exchange market in such volume as DBL executed on October 15, 2008.

PSzÁF took into account as aggravating circumstances that the transactions took place during an especially sensitive period for the domestic money and capital markets, and that DBL attempted to use the consequences of its spot foreign exchange market transactions to influence its counterparties in the outstanding foreign exchange linked swap positions. On the other hand, DBL's full cooperation throughout the HFSA procedure, and the fact that it did not realise any financial gains from the transactions under investigation were considered as mitigating circumstances. (MTI – Econews)