Barclays Libor "Price Fixing" : Collusion Is Illegal . . .

This story is interesting on so many fronts, including:

1. The alleged activity went on for years. The FSA's investigation goes back to the middle of the last decade. How do we know when the collusion really started? 

2. Barclays was hit with a $453 million fine. How much had Barclays benefited over the course of the period in question?

3. Does the penalty fit the crime? Given that Barclays has been hit with a fine of this sort, how is it that no individual managers are held to account? Clearly some senior managers were well aware of the price fixing.

4. An individual institution cannot collude in a market as deep and broad as Libor by itself. If traders at Barclays were involved in manipulating Libor, then what about other banks on Wall Street? Where is the expose on those institutions?

Last I checked, I thought collusion was illegal. Paying fines — even of $450 million in size — have never truly changed  behaviors on Wall Street.

For those interested in “behind the scenes, backroom, inside Wall Street intrigue” a recently released SCATHING report by the UK regulator FSA is as good as it gets. For a taste of this report, I offer:

On numerous occasions between January 2005 and June 2009, Barclays' Derivatives Traders made requests to its Submitters for submissions based on their trading positions. These included requests made on behalf of derivatives traders at other banks.

The Derivatives Traders were motivated by profit and sought to benefit Barclays' trading positions. The aim of these requests was to influence the final benchmark LIBOR and EURIBOR rates published by the BBA and EBF.

The misconduct involving internal requests to the Submitters at Barclays was widespread, cutting across several currencies and occurring over a number of years. The Derivatives Traders discussed the requests openly at their desks. At least one Derivatives Trader at Barclays would shout across the euro Swaps Desk to confirm that other traders had no conflicting preference prior to making a request to the Submitters.

Requests to Barclays' Submitters were made verbally and a large amount of email and instant message evidence consisting of Derivatives Traders' requests also exists. At times, requests made by email alone were sent by the Derivatives Traders nearly every day. For example, requests were made by Barclays' US dollar Derivatives

Traders on 16 out of the 20 days on which Barclays made US dollar LIBOR submissions in February 2006 and on 14 out of the 23 days on which it made US dollar LIBOR submissions in March 2006.

In regard to the manipulation of Libor during the the financial crisis, the FSA report highlights:

 Submitters raised concerns about instructions to lower Barclays' submissions during the financial crisis. On 4 December 2007, a Submitter emailed Manager E, stating that he was “Feeling increasingly uncomfortable about the way in which USD libors are being set by the contributor banks, Barclays included”. He went on to note that his one month submission was 5.30 but he was paying in the market at 5.40. “Given a free hand I would have set at around 5.45% […] one contributor was paying [x%] in the market at 11 am [and setting at y%]. This is not an uncommon phenomenon. The same kind of thing is happening in all the periods although 1 month is the most distorted. My worry is that we (both Barclays and the contributor bank panel) are being seen to be contributing patently false rates.

We are therefore being dishonest by definition and are at risk of damaging our reputation in the market and with the regulators”.

Ponder that last line. “Dishonest by definition”….”damaging our reputation”….

People, companies, and industries have the reputation that they deserve. The FSA lays this out in spades. Where is the SEC?

Collusion takes more than one player.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.