ICAP Plc, the world’s largest broker of transactions between banks, was accused today by the European Union’s antitrust arm of colluding to help rig interbank lending rates.
ICAP received an antitrust complaint alleging it facilitated a cartel to manipulate yen (CME:J6M14) Libor. The so-called statement of objections is the next step in the EU enforcement process after the company refused to settle the antitrust case with the European Commission last year.
“The commission has concerns that ICAP may have been involved in cartels concerning yen interest rate derivatives as a facilitator,” the regulator said in an e-mailed statement today.
While ICAP declined to join an EU Libor accord, UBS AG, Royal Bank of Scotland Group Plc, Deutsche Bank AG, JPMorgan Chase & Co., Citigroup Inc. and brokerage RP Martin Holdings Ltd. admitted liability and agreed to a combined penalty of 669.7 million euros ($906.6 million).
The December EU announcement came months after ICAP cut a deal with U.S. and U.K. regulators in which it owned up to colluding with UBS traders and was fined $88 million.
The EU’s antitrust complaint alleges, “ICAP acted as a facilitator to breaches of EU competition law by certain banks in relation to yen Libor for isolated periods between 2007 and 2010,” the brokerage said in a statement. This relates to “the same underlying matters” ICAP settled with the U.S. Commodity Futures Trading Commission and the U.K. Financial Conduct Authority in September, it said.
“ICAP does not believe that it has breached any applicable EU competition law, and will defend itself against these allegations vigorously,” the London-based company said.
The brokerage will have an opportunity to respond to the EU’s antitrust complaint in writing and at a hearing.
The EU’s second-highest court ruled earlier this year that companies that only facilitate a cartel, rather than take a direct role, can still be held liable for competition-law violations.
The London Interbank Offered Rate, or Libor, and Euribor, the Euro Interbank Offered Rate, gauge banks’ estimated cost of borrowing over different periods of time. Libor is the benchmark interest rate for more than $360 trillion of securities.
Three former ICAP employees have been charged in the U.S. and U.K. with helping senior UBS trader Tom Hayes to rig rates.
“One must assume that ICAP considers it has a reasonable prospect of arguing successfully that conduct that was found to have breached regulatory standards in the U.K. and the U.S. was not also a breach of EU competition law,” said Jonathan Cary, a lawyer at Reynolds Porter Chamberlain LLP. “It is a high-risk strategy to press on alone, particularly given the level of fines that the commission is able to impose.”
In a parallel case, the EU also sent JPMorgan, HSBC Holdings Plc and Credit Agricole SA statements of objections on May 20 alleging they participated in a cartel to rig Euribor.
Interdealer brokers such as ICAP act as go-betweens for banks that trade bonds, stocks, currencies, energy and derivatives. Brokers assumed greater influence as credit markets froze during the early stages of the financial crisis in 2007. Bankers who made submissions to Libor increasingly relied on information from the brokers to determine what figures to contribute because there were no trades on which to base them.
The credit freeze left the benchmark vulnerable to manipulation by traders trying to profit from bets on derivatives.