British executives Mark Johnson and Stuart Scott face charges of conspiring to defraud a client in a $3.5bn currency deal that took place in December 2011, The Telegraph reported.
Scott, HSBC’s former head of foreign exchange for Europe, the Middle East and Africa, left the bank in December 2014.
According to the complaint the high profile traders misused information provided to them by a client which had hired HSBC to execute a foreign exchange transaction related to the planned sale of one of the client's foreign subsidiaries.
The deal involved converting $3.5bn into sterling for the client company -believed to be London-listed Cairn Energy- a transaction that allegedly generated $8m for HSBC.
The traders are accused of buying sterling “in advance of the transaction, knowing that the transaction would cause the price of sterling to increase, thereby generating substantial trading profits for HSBC and the defendants,” according to US prosecutors.
Johnson's arrest marks an escalation of the US Department of Justice's long-running investigation into foreign exchange trading at international banks.
"The defendants allegedly betrayed their client's confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank," said Assistant Attorney General Leslie Caldwell.
"This case demonstrates the Criminal Division's commitment to hold corporate executives, including at the world's largest and most sophisticated institutions, responsible for their crimes," she added.
"We have been liaising with the DoJ regarding FX investigations on both sides of the Atlantic, said the Financial Conduct Authority. But, it added: "We will not comment on specific strands of investigations."
Johnson appeared before Judge Lois Bloom in a New York court on Wednesday to confirm that he understood the allegations against him. He was granted a $1m bail. Scott has not been arrested and is believed to still be in the UK.
HSBC declined to comment.