CFTC orders UBS to pay $700 million for manipulating Libor

CFTC action part of overall $1.5 billion fine

Manipulative Conduct For Profit

As detailed in the Order, from at least January 2005 through at least June 2010, UBS routinely skewed its submissions for Yen, Swiss Franc, Sterling and Euro LIBOR, Euribor, and, at times, Euroyen TIBOR, to benefit UBS’s derivatives trading positions that were tied to those particular benchmarks.  This unlawful conduct involved more than three dozen traders and submitters located in many offices, from London to Zurich to Tokyo, and elsewhere.  Several UBS managers participated in or knew that this was a routine practice of the traders, and did nothing to stop it. 

According to the Order, UBS’s interest rate submissions were determined by inherently conflicted UBS derivatives traders, who, not only determined the rates to submit, but also traded derivatives for UBS’s profit based on the same benchmarks.  The Order finds that, in deciding what rates to submit, these traders often took into consideration how their trading positions might benefit, and also routinely accommodated requests of other UBS derivatives traders to make similarly beneficial submissions.

The Senior Yen Trader and Interdealer Brokers

The Order sets forth the particularly extensive unlawful activity of one UBS senior Yen trader (“Senior Yen Trader”), known as one of the most significant traders in the Yen market, who generated hundreds of millions of dollars in trading revenue for UBS.  The Senior Yen Trader orchestrated a massive, multi-year course of conduct to manipulate Yen LIBOR almost daily at times, and Euroyen TIBOR less frequently.  In three years, the Senior Yen Trader, along with other UBS employees made approximately 2000 requests by email or in written chats alone, to manipulate Yen LIBOR, accounting for 75% of the days in which Yen LIBOR submissions were made by UBS during that period.  At times, the Senior Yen Trader conducted sustained manipulative operations for weeks to move Yen LIBOR in the direction he needed; these operations were given names such as “the Turn Campaign” and “Operation 6m.” 

The Senior Yen Trader used at least three manipulative strategies:  (i) he wrongfully induced at least five interdealer brokers to assist with his manipulative scheme; (ii) he had UBS submitters make submissions reflecting his preferred rates; and (iii) he cultivated prior working relationships and friendships with derivatives traders from at least four other banks and had them make requests of their banks’ own Yen LIBOR submitters based on his preferred rates.

With respect to interdealer brokers, who act as intermediates to cash and derivatives transactions for their bank clients, the Order finds that the Senior Yen Trader induced such brokers to employ various unlawful methods tailored to drive the submissions of other panel banks to achieve the rates that would benefit the Senior Yen Trader’s derivatives positions.  Thus, from late 2006 to late 2009, he made requests of interdealer brokers to: (i) disseminate false “run-throughs” of suggested Yen LIBOR to panel bank submitters, whom a broker once referred to as “sheep” following the information; (ii) contact other panel bank submitters to influence their submissions; (iii) publish false market cash rates on dedicated electronic screens available to the brokers’ bank clients; and (iv) “spoof,” i.e., make fake bids and offers, to influence submissions of other panel bank submitters.  To secure the cooperation of interdealer brokers, the Senior Yen Trader took steps to make sure the brokers were compensated, or sometimes threatened to steer his business away from them.  The compensation took the form of additional trades or even wash trades that generated broker commissions, and certain individuals at one broker received approximately $216,000 from UBS in paid fees/bonuses, which were shared over approximately two years in return for their unlawful assistance. 

According to the Order, in making requests of UBS submitters for beneficial submissions, the Senior Yen Trader was sometimes careful not to cause a conflict with trading positions held by the UBS Yen submitters who were helping him.  He sometimes reconciled conflicts by executing transactions to offset any negative impact on the submitters’ positions.  This was all to make sure that the UBS employees involved with the scheme, as one submitter commented, were “one happy family.”

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