Bank of New York Mellon, accused by state and federal officials of defrauding public pension funds on foreign-exchange trades, is offering some of those customers a new pricing model.
The bank has proposed applying fixed margins over benchmark currency rates when automatically executing currency trades for custody clients, said Mary Jane Wardlow, a spokeswoman for the $109.9 billion Texas Employees Retirement System, Austin. The bank would price the trades at specific times, rather than pick a rate that’s favorable for the bank at the end of the day.
Under the new model, BNY Mellon would offer prices “tied to a WM/Reuters benchmark rate,” Ms. Wardlow said in an e-mail. She said the bank hadn’t discontinued the old model, but was rolling out an alternative for customers.
BNY Mellon was sued last month by New York Attorney General Eric T. Schneiderman and the U.S. Attorney’s Office in Manhattan, who said it overcharged the $115.2 billion New York City Retirement Systems by more than $2 billion on foreign-exchange transactions. BNY Mellon, which has denied the accusations, is in early stage talks with federal prosecutors to settle, according to a person briefed on the discussions.
BNY Mellon links its pricing of standing instruction transactions to the daily range of the interbank exchange rate. The bank “tends to purchase currencies from our clients towards the low end of the interbank range and sell towards the high end,” according to Kevin Heine, a BNY Mellon spokesman.
The lawsuits claim BNY Mellon promised a rate that was better than the least favorable interbank rate in its contracts with several funds. The New York state case cites excerpts showing the bank promised some clients “the best rate of the day” or “most competitive/attractive FX rates available to us.”
Attorneys general in Virginia and Florida, and Massachusetts’s top securities regulator have also sued BNY Mellon.
Texas Employees, which agreed to a custody contract with BNY Mellon in February, replacing J.P. Morgan Chase, isn’t among those that have sued BNY Mellon.