BUSINESS
05/24/2011 07:48 am ET | Updated Jul 24, 2011

Forex Trading By State Street, BONY-Mellon Probed SEC

The Securities and Exchange Commission (SEC) is probing whether two major banks made proper representations to pension-fund clients about how their currency trades would be handled and priced, the Wall Street Journal reported, citing a person familiar with the matter.

The Journal said the probe is examining the currency trading activities of the two of the world's largest custody banks, State Street Corp and Bank of New York Mellon, and whether the banks misrepresented how they intended to carry out the foreign exchange trades.

Foreign exchange traditionally has been a rich source of revenue for U.S. banks, particularly custodial banks, which not only profit from buying international stocks and bonds for pension funds and other investors, but also on trading dollars into other currencies. Foreign exchange overall is a huge business, with average daily volume of $4 trillion.

Earlier in May, State Street revealed in a quarterly filing it was under investigation by the SEC and also disclosed that two clients began litigation against it seeking unspecified damages, on behalf of all custodial clients that executed foreign exchange transactions through State Street.

However, the regulatory authority's investigation of BNY Mellon wasn't previously known.

Both the banks were not immediately available for comment.

(Reporting by Siddharth Cavale in Bangalore; Editing by Kim Coghill)

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