Interdealer brokers emerge as key enablers in Libor scandal

Emails allegedly reveal efforts to rig rates

‘Fixing Service’

On occasion, UBS traders also asked brokers to help mislead traders at other banks by altering the cash rates they displayed on clients’ electronic screens, the CFTC said.

UBS paid 15,000 pounds ($24,000) a quarter to an unidentified broker over an 18-month period for the provision of a “fixing service” for yen Libor, the FSA said in its settlement with the bank. The broker, which provided Libor panel banks with a daily “run-through” on where it estimated benchmark rates would be set, would tailor its commentary to suit Hayes’s requests.

Brokers were willing to help traders to win future work. Some were also rewarded with so-called wash trades, where counterparties place two or more matching trades through a broker that cancel one another out while triggering a payment of fees to the middle man, according to transcripts released by regulators on Feb. 6.

‘Some Bro’

Hayes colluded with RBS derivatives trader Neil Danziger to make almost 211,000 pounds of illicit payments to two brokers, regulators said in filings that didn’t identify the individuals and firms. One of the brokers was RP Martin, people with knowledge of the matter said. Danziger didn’t return messages or a request for comment left with his lawyer.

“Can you do me a favor,” the broker asked Danziger on Sept. 19, 2008, according to a transcript released by the CFTC. “You’re not going to get paid any bro for this and we’ll send you lunch around for the whole desk.” As the broker outlined the trade, he said “Take it from UBS, give it back to UBS. He wants to pay some bro,” referring to fees.

“Yeah, yeah,” Danziger replied.

Later that day, the broker asked Danziger if he could “do another 100 yards” or 100 billion, increasing the size of the transaction. “Flat switch,” the broker said. “I know I’m pushing my luck.”

The broker netted about $31,000 in fees from the trades, according to the CFTC.

Bloomberg News

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