Bank of New York Mellon Corp. (BNY Mellon) responded today to allegations that it took advantage of clients involved in foreign exchange (forex) trades over the years. While the bank admitted that the bank usually priced forex trades at one end of the day’s “interbank” range, it vehemently denied any wrongdoing.
BNY Mellon has been sued in several states for alleged mishandling of pension funds’ forex trades, and an analysis released by the Wall Street Journal will certainly add fuel to the fire. The study, which surveyed 9,400 forex trades processed over the past decade on behalf of a Los Angeles pension fund shows that the bank priced over half of those trades in the most expensive 10% of the day’s trading range for the fund. The Journal estimates that the fund would have saved $4.5 million if the trades had been made at the middle of the day’s range.
BNY Mellon, which has verified the data, says it sees nothing exploitative or misleading about the practices. Clients, it argues, knew or should have know that the bank would act in its own interest rather than in their interest when pricing trades. The LA pension fund disagrees. According to a letter sent by the fund to BNY Mellon in January, the bank was acting as its fiduciary, and therefore should have given it the best execution, instead of making millions on inflated trades.
The controversy surrounding BNY Mellon is part of a larger storm threatening to engulf the entire “custody bank” field. Rival corporation State Street is under investigation by several state and federal agencies for similar trade practices. Whistle-blowing groups claim that the bank mislead clients, effectively falsifying their statements by creatively reporting the daily rates. However, the bank maintains that their rates were fair, and the trades made through BNY Mellon were at far better rates than they could have found on their own.