Traders Manipulated Key Rate, Bank Says


February 17, 2012 / WSJ

A group of traders and brokers successfully managed to manipulate an interest rate that affects loans around the world, one of the banks being investigated has told regulators.

In a court filing in Ottawa, Canada's Competition Bureau said a bank it didn't identify has told the agency's investigators that people involved in the alleged scheme "were able to move" interest rates.


People familiar with the situation said the "cooperating party" is UBS AG.



The Swiss bank has said it is assisting regulators in a sprawling interest-rate probe in North America, Europe and Asia, which has led to a score of individuals being fired or suspended by major U.S. and European banks and leading brokers.


No banks or individuals have been charged with wrongdoing.


The benchmark interest rates at the center of the probe are used to price home and auto loans, corporate debt and derivatives totaling more than $350 trillion.


The Canadian court documents, which were reviewed by The Wall Street Journal, name several alleged participants of the scheme, which involved the yen London interbank offered rate, known as yen Libor, between 2007 and June 2010.


The documents said regulators also are looking at alleged attempts to fix the prices of certain derivative financial products linked to Libor.


The Canadian regulator also sets out clearly for the first time how its investigators believe bank employees may have managed to game a system used to set costs for financial products around the world, with the alleged aim of increasing their trading profits.


The yen Libor rate is set daily by a 16-bank panel, organized by the British Bankers' Association. Around 11 a.m. London time every day, each bank submits estimates to the BBA of what rates it would pay to borrow from other banks for different time periods. The top four and bottom four quotes are then discarded, and Libor is calculated using an average of the middle eight quotes.


The Canadian watchdog said lawyers acting for the cooperating bank had told it that traders at six banks on the yen Libor panel—Citigroup Inc., Deutsche Bank AG, HSBC Holdings PLC, J.P. Morgan Chase & Co., Royal Bank of Scotland Group PLC and UBS—"entered into agreements to submit artificially high or artificially low" quotes, according to the court documents.


The traders used emails and instant messages to tell each other whether they wanted "to see a higher or lower yen Libor [rate] to aid their trading position(s)," according to a court filing. Each of the traders would then "communicate internally" with the person at their bank who was responsible for submitting the Libor quote, before letting each other know if this attempt to influence the quote had worked. "Not all attempts to affect Libor submissions were successful," the regulator said in the court filing.


The Canadian regulator said it is investigating whether the traders also "conspired" with individuals at interdealer broker firms, according to the documents. These brokers act as go-betweens for the different banks, advising them on the interbank borrowing rates on which Libor quotes are based.


The brokers were asked by the traders "to use their influence with yen Libor submitters to affect what rates were submitted by other yen Libor panel banks," including banks that were part of the alleged conspiracy, according to a court filing.


ICAP PLC and RP Martin Holdings Ltd, two of the top three London-based interdealer brokers, are under investigation, the Canadian regulator said in the court documents. It named Darrell Read, an ICAP employee at the time of the alleged manipulation, as one of the individuals its investigators believed was involved. Terry Farr, an employee of RP Martin, also is under investigation, according to people familiar with the matter.


Representatives of ICAP and RP Martin declined to comment. ICAP disclosed last year it had received requests "from some government agencies" related to Libor investigations and said it was cooperating fully.


Mr. Read couldn't be reached for comment. Mr. Farr is on agreed leave from RP Martin and "has been and continues to be cooperative" with investigators, said his attorney, Glenn Colton of law firm SNR Denton. He added that Mr. Farr "is not a target of any U.S. investigation."


The BBA has made some tweaks to how Libor is calculated, such as increasing the size of the U.S. dollar panel, since concerns about the integrity of the system were raised following the financial crisis.

But the fundamental approach of calculating rates based on estimates submitted by banks remains unchanged, despite the intensifying global probe.


A spokesman for the association said it didn't comment on any investigations affecting its member banks.


"We are committed to retaining the reputation and integrity of BBA Libor, which continues to be the authoritative benchmark of the wholesale money market," the spokesman said. The BBA declined to specify whether further changes to the system were planned but said all aspects of the design and operation of Libor are kept under "continual review and scrutiny."


The Journal this week disclosed the Canadian inquiry, adding one more country to probes into alleged manipulation of Libor and other benchmark rates that involve regulators in the U.S., Europe and Japan. The European probes cover some banks not named by the Canadians. The yen Libor rate at the center of many of the probes affects only part of the loans and derivatives linked to different Libor rates.


The regulators are sharing certain information, according to people familiar with the matter. However, it isn't clear the extent to which the probes are being coordinated.

The Canadian court documents, which were filed last year, are affidavits supporting the Competition Bureau's requests to a Canadian court to compel the named firms to produce information related to the investigation. The requests were approved.


In the documents, the Canadian regulator identified several London-based traders it said were participants in the alleged scheme. They include Guillaume Adolph, identified as a Deutsche Bank trader; Peter O'Leary of HSBC; Paul Glands and Stewart Wiley of J.P. Morgan, and Brent Davies and Will Hall of Royal Bank of Scotland.


None of these individuals could be reached for comment Thursday.


All the traders identified by regulators in relation to the various investigations have since left the banks concerned, according to people familiar with the matter and regulatory records.


UBS has suspended two senior Zurich-based traders in relation to the investigation, Yvan Ducrot and Holger Seger, according to a person familiar with the matter. Messrs. Ducrot and Seger didn't respond to requests for comment Thursday. The identities of Messrs. Ducrot and Seger were reported earlier by the Financial Times.


—Deborah Ball contributed to this article. Write to Jean Eaglesham at and David Enrich at



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