LIBOR scandal: traders’ messages made a mockery of market conduct rules

The Died Laughing Cavalier

The US Department of Justice, the Commodity Futures Trading Commission, the UK’s Financial Conduct Authority and the Dutch Financial Markets Authority have fined Rabobank US$1bn altogether for manipulating the LIBOR and EURIBOR rates. Rabobank is the latest institution to be exposed in the rigging scandal. Rabobank’s Chief Executive Piet Moerland resigned yesterday, shocked and appalled by the cavalier language used by traders at Rabobank when they were fixing LIBOR and EURIBOR rates. The messages recorded between traders makes for depressing reading, at times admitting the LIBOR and EURIBOR submissions were both  “obseenly high” (sic) and “silly low.” This was coupled with references to collusion such as “scratch my back, yeah” to which a broker observed, “Yeah oh definitely, yeah, play the rules.” The traders and brokers involved in the LIBOR and EURIBOR rigging saw their efforts as a game, played with someone else’s money while allowing them to line their own pockets. The cavalier attitude in the messages openly mock the financial system and attempts at regulation and throw the actions of government and regulators into very sharp relief. Piet Moerland has set an example by standing down as CEO. Rabobank was established as a co-operative, which turned into a cartel benefiting those who ran the bank, rather than its clients and shareholders. Here’s a reminder of what ex-RBS Chief Steven Hester said about LIBOR rigging back in February. http://www.youtube.com/watch?v=EzqVwhMG09Q The UK and US regulators have so-far called Rabobank’s misconduct ‘unacceptable’ and have promised that investigations are ‘far from over.’ I bet the traders are quaking in their handmade leather boots. Regulators’ statements in brief From the FCA Rabobank’s poor internal controls encouraged collusion between traders and LIBOR submitters and allowed systematic attempts at benchmark manipulation. Rabobank did not fully address these failings until August 2012, despite assuring the FCA in March 2011 that suitable arrangements were in place. Tracey McDermott, the FCA’s director of enforcement and financial crime said: “Rabobank’s misconduct is among the most serious we have identified on LIBOR. Traders and submitters treated LIBOR submissions as a potential way to make money, with no regard for the integrity of the market. This is unacceptable. FCA Press Release From the US DOJ The DOJ has entered a deferred prosecution agreement with the bank, requiring the bank to admit and accept responsibility for the extensive manipulation of the reference rate. “For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates – Euribor and LIBOR for the U.S. dollar, the yen, and the pound sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.  “Today’s criminal resolution – which represents the second-largest penalty in the Criminal Division’s active, ongoing investigation of the manipulation of global benchmark interest rates by some of the largest banks in the world – comes fast on the heels of charges brought against three former ICAP brokers just last month.  Rabobank is the fourth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and other banks should pay attention: our investigation is far from over.” US DOJ Press Release From the CFTC From at least mid-2005 through early 2011, Rabobank traders engaged in hundreds of manipulative acts undermining the integrity of U.S. Dollar and Yen LIBOR, Euribor and, to a lesser extent, Sterling LIBOR. The violations took various forms: Rabobank traders, some of whom doubled as LIBOR and Euribor submitters, regularly made and accommodated their fellow traders’ requests to make favorable rate submissions to benefit their trading positions through attempts to manipulate U.S. Dollar and Yen LIBOR and Euribor. On occasion, they did the same with respect to Sterling LIBOR. Making submissions that were, as some Rabobank employees said at the time, “ridiclous,” “obseenly high” and “silly low,” more than two dozen traders, including several desk managers and at least one senior manager located in Rabobank’s New York, London, Utrecht, Tokyo, Hong Kong, and Singapore offices engaged in this wrongful conduct or knew it was ongoing at the time but did nothing to stop it. CFTC release

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