The LIBOR fixing scandal has just opened up a new chapter. US regulators are charging three former Rabobank traders with fixing the yen LIBOR to benefit themselves and their associates who trade in derivatives effected by benchmark interest rates, report Patricia Hurtado and Tom Schoenberg for Bloomberg.
Paul Robson (former senior trader at the money markets and short term forwards London desk), Paul Thomspon (former head of money market and derivatives trading for Northeast Asia), and Tetsuya Motomura (former senior trader at the Tokyo desk) were charged with multiple counts of wire and bank fraud.
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Traders allegedly conspired to move yen LIBOR a few bp at a time
“These three traders — working from Japan, Singapore and the United Kingdom — deliberately submitted what they called ‘obscenely high’ or ‘silly low’ Libor rates in order to benefit their own trading positions,” said acting assistant US Attorney General Mythili Raman. Attorneys for the accused traders and Rabobank have not yet commented on the allegations.
By submitting unrealistically high or low rates when the yen LIBOR is fixed, the traders were able to move the final number by a few basis points, but this is enough to significantly affect derivatives whose prices are determined by it. If one of the co-defendants coordinated with the other traders, as regulators allege, then when any one of them had significant exposure to overnight interest rates they could work together to improve the value of their holdings at the expense of their counterparties.
Previous LIBOR fixing allegations brought down Rabobank CEO
A previous round of charges for LIBOR fixing resulted in $1.07 billion in fines for Rabobank and fines for dealer-broker ICAP plc (ADR) (OTCMKTS:IAPLY) (LON:IAP), Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) (AMS:RBS), Barclays PLC (NYSE:BCS) (LON:BARC), and UBS AG (NYSE:UBS). Rabobank’s CEO Piet Moerland stepped down in the aftermath of the previous scandal and was replaced by interim CEO Rinus Minderhound. The new allegations would have happened before Minderhand took the helm, but they still add to the notion of a bank with a problematic corporate culture.
Most people aren’t terribly surprised that more LIBOR fixing allegations have surfaced from the same time period; the previous settlements have led many people to believe that regulations and internal oversight needs to catch up with how overnight interest rates impact the derivatives market.