The probe of Libor manipulation is proving to be the tip of the iceberg as inquiries into assets from derivatives to foreign exchange show that if there’s a chance to rig benchmark rates in world markets, someone is usually willing to try.
Singapore’s monetary authority last week censured 20 banks for attempting to fix interest rate levels in the island state and ordered them to set aside as much as $9.6 billion. Britain’s markets regulator is looking into the $4.7 trillion-a-day currency market after Bloomberg News reported that traders have manipulated key rates for more than a decade, citing five dealers.
“It’s happened time and again: all of these markets have been influenced by major market-makers, which is a polite way of saying they’ve been rigged,” Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, said in a telephone interview.
While the indexes under scrutiny are little known to the public, their influence extends to trillions of dollars in securities and derivatives. Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc have been fined about $2.5 billion in the past year for distorting the London interbank offered rate, which is tied to $300 trillion worth of securities. Regulators are also probing ISDAfix, a measure used in the $370 trillion interest-rate swaps market, as well as how some oil products prices are set.
Inquiries are broadening into the transparency of benchmarks whose levels can be determined by the same people whose income they affect. In the case of Libor, traders who stood to profit worked with bank employees responsible for submissions for the benchmark to rig the price, according to the U.K. Financial Services Authority.
The International Organization of Securities Commissions, or Iosco, a Madrid-based group that harmonizes market rules, identified a set of benchmarks in a January report that could impair the global economy if they were found to be prone to manipulation. Along with Libor, ISDAfix and energy market prices, Iosco flagged measures used in markets for overnight lending and repurchases, equities, bonds and alternative investments such as hedge funds.
Iosco may propose final guidelines as soon as next month for improving transparency and oversight of benchmarks, including the WM/Reuters rates used in the foreign-exchange market, the subject of last week’s Bloomberg story, people familiar with the matter who asked not to be named because the talks aren’t finalized said last week.