In an early morning chat, three senior currency traders at someof the world's biggest banks weighed the pros and cons of admittinga fourth member to their private instant-message group.

The traders — from Citigroup Inc., JPMorgan Chase & Co. andUBS AG — had worked together for years to manipulate the $5.3trillion-a-day currency market by sharing details of client ordersand coordinating trading strategies, two people with knowledge of aglobal investigation into the foreign-exchange market said lastyear. While adding a new recruit would bolster their strength, theyworried he couldn't be trusted to put the group's interests aheadof his firm's.

“Will he tell the rest of desk stuff,” Richard Usher, JPMorgan'schief London-based dealer, wrote in the chat published Wednesday bythe U.S. Commodity Futures Trading Commission. “Or god forbid hisnyk,” he said, referring to the New York trading desk.

“That's the really imp[ortant] q[uestion],” replied Citigroup'sLondon-based head of European spot trading, Rohan Ramchandani.“Don't want other numpty's to know. Is he gonna protect us like weprotect each other.”

The undated conversation and hundreds of others form the bedrockof investigations that Wednesday saw regulators penalize six banks,including Citigroup, JPMorgan and UBS, a record $4.3 billion forrigging foreign-exchange benchmarks. The transcripts show tradersboasting about “whacking” and “double teaming” the market andcongratulating one another when plans paid off. The fines are thefirst wave of sanctions against banks and could be followed bycriminal charges.

“It was an attack at the core of what the markets are about,”John McFall, a Labour member of the U.K. House of Lords, saidThursday. “It should be about transparency and serving the public,and on both of those grounds it was rigged. You're talking aboutculture and change. It shows we haven't seen that yet.”

The three traders at Citigroup, JPMorgan and UBS eventuallyagreed to let the newcomer join because he would “add huge value tothis cartell,” one wrote. He was admitted for a month-long trialand told “mess this up and sleep with one eye open at night.”

While Usher and Ramchandani weren't named in the documentreleased by the CFTC, their identities were confirmed by two peoplewith knowledge of the probes who asked not to be named because somedetails of the settlement remain private. The other traderscouldn't be identified. Ramchandani, who was fired by Citigroupearlier this year, and Usher, who left JPMorgan after being put onleave in 2013, declined to comment. They haven't been accused ofwrongdoing by authorities.

3 Musketeers

The traders, and others at banks including HSBC Holdings Plc andRoyal Bank of Scotland Group Plc, would congregate in chat rooms anhour or so before benchmark rates are set to discuss theiraggregate trading positions and how to execute them to their mutualbenefit, according to statements and transcripts released Wednesdayby U.S., U.K. and Swiss regulators. The groups dubbed themselves“the 3 musketeers,” “1 team, 1 dream” and “the A-team,” Britain'sFinancial Conduct Authority said.

“The trader at the center of this investigation, verydisappointing behavior, very serious on his part,” JPMorgan'scommercial bank chief Doug Petno said at a conference in New YorkWednesday hosted by Bank of America Corp. “It's a reminder that thebehaviors of a single individual define a company and so it'ssomething that we're super focused on as a business.”

A lawyer for Usher didn't immediately respond to an e-mailseeking comment on Petno's remarks.

The fines arose from traders' attempts to manipulate theWM/Reuters currency benchmark, which is used to determine the valueof $3.6 trillion in index tracker funds around the world. The rate,known as the fix, is set for more than 130 currencies by taking asnapshot of trades in the 30 seconds before and after 4 p.m. inLondon.

“Foreign exchange is the oxygen for international trade,” BillMichael, head of Europe, Middle East and Africa financial servicesfor KPMG LLP in London, said Thursday. It's “a betrayal of thenotion that banks will act in the best interest of thecustomer.”

From at least January 2008 through early 2012 traders adopted anarray of strategies to maximize their profits at the fix,regulators said. If one of them had orders that ran counter to therest of the group, he would attempt to offload his position with anunsuspecting counterpart at another bank to avoid clashing withco-conspirators.

If the traders all had orders in the same direction, they wouldseek to turbocharge any price moves. In the minutes before the fix,they would attempt to sniff out any banks with large orders in theother direction and trade with them in advance, a process known inthe market as “taking out the filth.” At other times they wouldtrade with third parties outside the chat room with the intentionof giving them orders in the same direction to execute at thefix.

Sometimes they would transfer their orders, known as “ammo,” ina particular currency pair to one trader, or divvy up the ordersbetween two traders who worked together to maximize their impact onthe fix, regulators said.

After establishing that they both had a lot of euros to sell inexchange for dollars at the fix one day, Usher and Ramchandaniagreed to join forces, according to a transcript published by theCFTC without a date. Usher, a former RBS trader, was the moderatorof the chat room known as “The Cartel,” people with knowledge ofthe matter said in December. Ramchandani joined Citigroup's tradingdesk after graduating from the University of Pennsylvania with adegree in economics.

'Double Team'

“Tell you what, lets double team it. How much you got,” Usherasked about eight minutes before that day's fix.

“ok. 300. U?” his counterpart at Citigroup replied. “ok ill giveyou 500 more,” said Usher.

Even colluding with one another was no guarantee traders wouldsucceed in moving the rate. The market moved against Ramchandaniand Usher that day, and they lost money, according to thetranscript. On other occasions they boasted of making hundreds ofthousands of dollars on a trade.

“The traders put their own interest ahead of their customers,they manipulated the market — or attempted to manipulate the market— and abused the trust of the public,” FCA CEO Martin Wheatley toldreporters at a briefing in London Wednesday, without identifyingwhich traders he was talking about. The regulator will press firmsto review their bonus plans and claw back payments alreadymade.

The fines were the largest the British regulator has imposed andmark the first time it has entered into a group banksettlement.

Some foreign-exchange traders became concerned that their owncommunications could be problematic as their banks prepared tosettle with regulators over allegations of rigging anotherbenchmark, the London interbank offered rate, in 2012. In March ofthat year, an unidentified JPMorgan trader asked the bank'scompliance team what procedures they had in place about sharinginformation in chat rooms with traders at other firms ahead of thefix, the FCA's settlement with the bank shows.

That same month Niall O'Riordan, UBS's co-chief currency dealer,called Bank of England official Martin Mallett to discuss how bankscommunicated ahead of the fix to seek his advice about whether thechats would raise concerns by regulators, according to a reportreleased Wednesday by the central bank. Mallett described thepractices as “the murkier side of our business” and raised theissue at a meeting of senior foreign-exchange dealers in April2012.

Mallett was dismissed Nov. 11 for “failure to adhere to thebank's internal policies,” not as a result of the investigation,the BOE said.

Citigroup Fine

Citigroup, the world's top currency dealer, was ordered to paythe biggest fine at about $1.02 billion, according to statementsfrom the CFTC, FCA, the Swiss Financial Market SupervisoryAuthority and the Office of Comptroller of the Currency. JPMorganwill pay $1.01 billion, followed by UBS with $800 million.

RBS was fined about $634 million, HSBC $618 million and Bank ofAmerica Corp. $250 million. Barclays Plc, which had been insettlement talks, said it wasn't ready for a deal.

More than 30 dealers have been fired, suspended, put on leave orresigned since the probes began last year. Banks are overhaulinghow they trade currencies to regain the trust of customers. Theyhave capped what employees can charge for exchanging currencies,limited dealers' access to information about customer orders andbanned the use of online chat rooms, people familiar with the movessaid in September.

Despite the impact their behavior had on the value of trillionsof dollars of investments around the world, the traders regularlycongratulated each other for successfully manipulating themarket.

“Well done gents,” said one trader after one day's fix,according to the CFTC settlement document.

“Hooray nice team work,” a trader at another bank replied.

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