NAB drags brokers into forex options trading scandal

So far, NAB has issued a letter demanding compensation, but said last week it intends to seek exemplary damages against Icap in any proceedings brought against that firm.

The bank is alleging that a broker at one of Icap's Singapore subsidiaries – a member of the TFS-Icap joint venture formed with Tradition – supplied revaluation data that helped to mask trading losses in NAB's forex options business.

Speculation had already mounted last year that Cantor Fitzgerald was the other broker involved after the Australian press quoted ex-NAB chief dealer David Bullen as saying that Cantor provided most of the currency options desk's revaluation data. Bullen had cited TSF-Icap as another broker the desk had used. Cantor declined to comment while NAB refused to provide names.

The scandal, involving four traders – ex-FX options head Luke Duffy, Bullen, and FX options traders Gianni Gray and Vincent Ficarra – surfaced in January last year, costing the bank A$360 million in losses.

NAB is seeking compensation for foreign currency trading losses and additional capital expenses. The bank is also looking to be reimbursed for the loss of profit as a result of the disruption to its foreign currency options trading service, which was shut down by the local regulatory body, the Australian Prudential Regulation Authority (Apra).

Central to NAB's claims were the findings of an investigation into the scandal by PricewaterhouseCoopers (PwC) last year. According to the PwC report "at least two of the traders prepared schedules containing revaluation rates, which were emailed to third parties used by the National. These rates were emailed back to the National un-amended”.

A spokesperson for NAB in Melbourne said: "That is the sort of behaviour we are seeking compensation over, and we are very confident we have a strong case."

A statement from the bank said while it would prefer to resolve its claims against those parties by negotiation, "it may be necessary for it to bring legal proceedings against them to enforce its rights".

NAB said it is has conducted a detailed forensic investigation over the course of more than a year in preparing its claims. It also said it has gathered evidence during inquiries by Apra and PwC. The spokesperson said the bank used experts in New York and Australia to look at the whole trading desk activity.

A statement from Icap said "neither the Icap Group nor TFS-Icap accept any responsibility for these NAB trading losses" and they intend to "vigorously contest" any claim that may be made against them in this matter.

A spokesperson at Icap added the broker is currently investigating the allegations, but declined to provide a timetable for when this would be concluded.

Meanwhile, Compagnie Financiére Tradition – Icap's partner in the TFS-Icap joint venture – said it had been informed of the complaint and support's Icap's response.

While NAB is still reeling from the impact of the scandal, which resulted in a slew of departures, including chief executive Frank Cicutto and chairman Charles Allen, the FX business is seeing a return to profit.