Well ever thought or imagine of influencing the reference rate. Barcalys did that exactly the same in return the regulator FSA fined it with the largest fine in an attempted manipulation of and false reporting of LIBOR and Euribor Benchmark rates.
The LIBOR rate is a critical element of the financial system. Before I move further some basics on it to understand the scenario: LIBOR stands for ‘London InterBank Offered Rate‘. It is produced for ten currencies with 15 maturities quoted for each – ranging from overnight to 12 months – thus producing 150 rates each business day.
libor is a benchmark giving an indication of the average rate at which a leading bank can obtain unsecured funding in the London interbank market for a given period, in a given currency. It therefore represents the lowest real-world cost of unsecured funding in the London market.
Individual libor rates are the end-product of a calculation based upon submissions from a bank panel, made up of the largest, most active banks in each currency libor is quoted for.
Commodity Futures Trading Commission (CFTC) released the reports and some emails which are self-explanatory how the rate was manipulated :
On Monday, 13 March 2006, the following email exchange took place:
Trader C: “The big day [has] arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”
Submitter: “I am going 90 altho 91 is what I should be posting”.
Trader C: “[…] when I retire and write a book about this business your name will be written in golden letters […]”.
Submitter: “I would prefer this [to] not be in any book!”
on 27 May 2005:
Submitter: “Hi All, Just as an FYI, I will be in noon’ish on Monday […]”.
Trader B: “Noonish? Whos going to put my low fixings in? hehehe”
Submitter: “[…] [X or Y] will be here if you have any requests for the fixings”.
“I’m like, dude, you’re killing us,” he said. His manager replied, “just tell him to… put it low”.
In turn, the staff submitting the data would respond to the traders’ requests.
“For you…anything,” said one. “Done… for you big boy,” said another.
And: “I owe you big time… I’m opening a bottle of Bollinger.”
Here is some More : –
June 1, 2006:
Senior euro swaps trader: “Hi [Euribor Submitter], is it too late to ask for a low 3m?”
Euribor submitter: “Just about to put them in ….. so no.”
September 7, 2006:
Senior euro swaps trader: “I have a huge 1m fixing today and it would really help to have a low 1m tx a lot.”
Euribor submitter: “I’ll do my best.”
Senior euro swaps trader: “because I am aware some other banle need a very high one … .if you could push it very low it would help. I have 50bn fixing.”
October 13, 2006:
Senior euro swaps trader: “I have a huge fixing on Monday … something like 30bn 1m fixing … and I would like it to be very very very high ….. Can you do something to help? I know a big clearer will be against us … and don’t want to lose money on that one.”
Euribor submitter forwarded the request to another Euribor submitter, advising: “We always try and do our best to help out. …. “
Senior euribor submitter to senior euro swaps trader: “By the way [euribor submitter] tells me that it would be good to see a high lmth fix on Monday, we will pay for some cash that morning so hopefully that will help.”
January 12, 2007:
Senior euro swaps trader: “hi [Euribor submitter]. we need a low 1m in the coming days if u can …. “
Senior euribor submitter: “hi [senior euro swaps trader], we will keep the 1mth low for a few days.”
April 2, 2007:
Euro swaps trader: “hello [Senior Euribor Submitter], could you please put in a high 6 month euribor today?”
Senior Euribor submitter: “will do.”