Key Facts on BNY Mellon Foreign Exchange Litigation
When it comes to standing instruction, many clients have made clear that this is a product they like, know how to use strategically and want to continue to leverage.
In fact, despite all the noise around the litigation, use of BNY Mellon's standing instruction program has increased in each of the past two years, and has in fact picked up in the first quarter of 2012 as compared to the fourth quarter of 2011. The bottom line is the foreign exchange market is a highly competitive market and clients recognize that BNY Mellon is providing very good value.
In addition, while the foreign exchange litigation has received outsized media attention, the reality is the foreign exchange trading environment is increasingly complex and competitive, significantly influencing the financial results of players in this space. Fortunately, clients have been largely supportive and appreciate the value we provide.
BNY Mellon has thrived for 225 years because of its ability to adapt to the changing marketplace and help its clients do the same. The company will continue to evaluate and evolve its product offerings to ensure that they are meeting client demand and best positioning clients to navigate an increasing complex financial environment.
Along those lines, BNY Mellon has added to its existing foreign exchange trading product line a new defined spread product that offers:
Pricing based on objective rate sources where applicable, captured periodically throughout the day
Daily, guaranteed rates that provide protection against extreme currency fluctuations
Post-transaction reporting that includes the time at which we capture each rate, if applicable
Trade aggregation and price netting, subject to market and program parameters
BNY Mellon has begun rolling this product out to its clients; some are interested in it; others are choosing to stay with the traditional standing instruction offering.
There have been positive developments on the legal front as well. BNY Mellon recently received favorable and noteworthy rulings in Virginia and California in two of the cases furthest along the litigation path. These two back-to-back positive results are significant developments as they demonstrate that these types of claims cannot withstand legal scrutiny.
In the Virginia case, the Court dismissed the entire case against BNY Mellon, which consisted of claims under Virginia's version of the False Claims Act, or "whistleblower" claims against the company.
In the California case, the Court dismissed the California False Claims Act claims against the company. In deciding that the whistleblower and his lawyers lacked a credible legal basis to pursue these claims, the California Court eliminated the plaintiffs' ability to seek any significant financial penalties.
These are important decisions because false claims act statutes tend to be similar from state to state and closely align with the federal False Claims Act. The company hopes that other state courts in which BNY Mellon is litigating these issues will be guided by these well-thought out rulings.
The company remains committed to its clients and to continuing to evolve its products and services to meet client needs. It recognizes that times are changing, that competition for client business is fierce and that, more than ever, it must prove to clients that they come first. BNY Mellon and its entire front line are dedicated to not just meeting, but exceeding client expectations.
Background on Standing Instruction
BNY Mellon's custody clients and their investment managers make strategic choices when executing FX transactions and, generally speaking, have three ways to enter into FX transactions: by directly negotiating with BNY Mellon's FX traders, by utilizing BNY Mellon's standing instruction program, or by engaging in transactions with third party providers. The litigation involves the standing instruction program, which clients and their investment managers use largely for small transactions (e.g., those that are not large enough to meet the $1 million minimum for the "wholesale" interbank market, and for transactions involving restricted currencies).
With standing instruction, BNY Mellon provides clients with prices that are more attractive than they typically could get for these "retail" size transactions. Additionally, the standing instruction service allows clients and their investment managers to outsource the costs, risks and management of certain FX transactions to BNY Mellon.
BNY Mellon has been quite public and steadfast in its defense against claims of wrongdoing in its standing instruction program. It is the company's position that it has always priced standing instruction transactions within a disclosed guaranteed range, that the price assigned to every transaction is disclosed to the client, and that its clients and their investment managers understood that they were not getting such a valuable service for free. The company believes that when the true facts come out in court, it will be vindicated. The Virginia and California cases are certainly a step in the right direction.