Britain To Scrap Libor Rate Benchmark From End Of 2021

Andrew Bailey

LONDON (Reuters) - A substitute for the widely-used Libor interest rate benchmark must be in place for banks to use by the end of 2021, the head of Britain's financial markets regulator said.

Libor, a daily rate in a range of currencies, is based on submissions from banks of interest rates they believe they would be charged by others for borrowing money. Banks have been fined billions of dollars for trying to manipulate the benchmark, forcing a rethink of its future.

The benchmark is used to price financial contracts worth $350 trillion, ranging from home loans to credit cards. Bank of England Governor Mark Carney said this month that reference rates should be based on market transactions not judgments.

Andrew Bailey, chief executive of the Financial Conduct Authority, told an event in London on Thursday that work must "begin in earnest" on shifting to an alternative index, saying the end of 2021 would offer time to ensure a smooth transition.

"By having a date by which transition will need to be complete, however, we give market participants a schedule to plan to, and make it easier for them to engage as many counterparties and Libor users as is practicably possible."

Libor must be replaced because there are not enough transactions underpinning the rates, Bailey said, adding that for one Libor variant only 15 trades were executed in 2016.

A Libor based on "expert judgment" of banks is fragile, and there is little prospect of the markets becoming substantially more active in the near future, Bailey said.

"In our view it is not only potentially unsustainable, but also undesirable, for market participants to rely indefinitely on reference rates that do not have active underlying markets to support them," Bailey said.

Banks have voluntarily agreed to contribute rates to Libor until 2021, but if this phase-out deadline was on course to be missed, there would be a "push" from the authorities, Bailey said, without elaborating.

Sonia Beckons

At least six bankers on both sides of the Atlantic have been sent to prison for manipulating Libor, although some in the United States are still awaiting sentencing.

Libor had been compiled by the now defunct British Bankers' Association, but following the rigging scandal, this was transferred to ICE Benchmark Administration (IBA), part of the Intercontinental Exchange (ICE.N).

IBA said changes to Libor have minimized subjective judgments. "Having consulted with regulators and over 1,000 market participants, we believe that the evolving Libor has a long-term sustainable future," it said.

The BoE has already been refining its overnight sterling funding rate SONIA, which is based on actual transactions, as a sterling Libor substitute. Earlier this year a BoE industry working group backed SONIA, which the central bank administers itself, as the substitute for Libor.

There could also be a second substitute benchmark to measure bank credit risk and funding markets that is based on a mix of SONIA and a proxy bank credit risk measure, Bailey said.

Setting a date would focus minds just as the end 2017 deadline to phase out Switzerland's TOIS reference rate triggered serious work on moving to the SARON rate, he said.

The Swiss National Bank said on Thursday it would in due course select an alternative to the Swiss franc Libor as a tool for guiding monetary policy. "Libor will not be scrapped until the end of 2021," it said.

Banks and IBA could continue to produce Libor after 2021, if they wanted to, Bailey said. Existing financial contracts that reference Libor and go beyond 2021 could be amended.

The U.S. Federal Reserve is developing a home-grown benchmark based on the repurchase agreement or repo market as an alternative to dollar Libor, which is used in some $150 trillion of private and exchange-traded derivatives.

The European Central Bank said in May it could replace Euribor, a euro-denominated counterpart to Libor, with a reference rate of its own.


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Reporting by Huw Jones; additional reporting by Kirstin Ridley; editing by Alexander Smith and David Clarke

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Story and photo via Reuters.

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Reuters: Former Barclays Trader Tells Court LIBOR Rate Promise Was "Just Banter"

Stylianos Contogoulas

Here's a clip from a Reuters article, dated May 18, 2016:

 "...A former Barclays trader accused of conspiring to rig a global interest rate said a promise to name a colleague in a book and to invite him to his bar in return for help in setting LIBOR was 'just banter'.

Greek-born Stylianos Contogoulas told Southwark Crown Court on Wednesday that he had been instructed by his boss within days of joining the Barclays dollar desk in 2005 to tell a senior colleague the level he wanted Libor rates set at.

'It was done very openly and in a very normal way and gave the impression this was a regular, normal thing,' Contogoulas said on his first day in the witness box.

Contogoulas, 44, is one of five former Barclays bankers charged with conspiracy to defraud by manipulating Libor, the London interbank offered rate, a benchmark for rates on around $450 trillion of financial contracts worldwide.

He and former colleagues Jonathan Mathew, Jay Merchant, Alex Pabon and Ryan Reich all deny dishonestly skewing rates - designed to reflect bank borrowing costs - to favor trading positions between June 2005 and September 2007.

As the second defendant to testify in the criminal trial, Contogoulas told the jury that he had been given no impression that asking for LIBOR rates was wrong or dishonest, that he had never had appropriate training, had not sought to conceal such requests ‎and knew Barclays monitored communications.

In an email exchange on March 13, 2006, Contogoulas told senior London submitter Peter Johnson: 'Remember when I retire and write a book about this business your name will be written in golden letters...and you'll have an open invitation to my bar in the Greek Islands he he'

Johnson responded: 'I would prefer this not to be in any books!'

Contogoulas said during his testimony on Wednesday that this was all 'just banter, not serious'.

'Did anyone ever comment on your emailed requests to (LIBOR) submitters?' asked his lawyer J‎ohn Ryder.

'No,' said Contogoulas, adding that he spent just minutes each day doing so and received no personal advantage from doing so.‎

Johnson's lawyer declined to comment on Wednesday.

Contogoulas, who passed on Libor requests from more senior New York traders to submitters in London, said he stopped making verbal requests and started emailing them because U.S. colleagues might otherwise question whether he was passing their requests on.

Emma Deacon, counsel for the Serious Fraud Office (SFO) prosecuting the case, questioned whether Contogoulas was minimizing his role by presenting himself as a conduit from New York to London, while in fact he traded the Barclays dollar book each morning.

'You're not seeking to minimize it (your role in the Libor requests)?' Deacon said.

'No,' Contogoulas replied.

'You were just a conduit?'

'Yes,' he said.

Contogoulas said the volume of his trades amounted to perhaps five percent of Barclays' whole short-end dollar book and his main role was as a 'babysitter' while the New York desk was closed.

Contogoulas's evidence follows that of Mathew, a former Libor submitter, who has told the court he had been taught by Johnson to adjust rates to suit traders and only realized this was wrong when interviewed by Barclays' lawyers in September 2009.

Mathew said he initially lied when U.S. authorities, who kickstarted a global Libor investigation in 2008, quizzed him in 2010 because he was afraid of his boss Johnson and of losing his job. He only told the truth when U.S. prosecutors offered him a non-prosecution agreement in 2011, he said.

The jury was told last week that Johnson, who had been charged alongside the other five defendants, pleaded guilty in 2014. The third Libor trial brought by the SFO in London is scheduled to last 12 weeks..."

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RBC and 15 Other Global Banks Face Revived Lawsuits Over Libor-Rigging Allegations

From the CBC News website:

"...A federal Appeals Court in New York City has reinstated lawsuits against 16 of the world's largest banks, including the Royal Bank of Canada, alleging they colluded to manipulate a benchmark interest rate.

The 2nd U.S. Circuit Court of Appeals in Manhattan on Monday restored the lawsuits, which had previously been dismissed by a lower-court judge.

The lawsuits were brought by people who bought investments sold by the banks that were based on a key lending rate known as LIBOR, an acronym for London Interbank Offered Rate, with evidence the banks were lying about and rigging in their favor.

• Royal Bank accused by FDIC of having role in LIBOR-rigging
• ​RBC subpoenaed in LIBOR probe

A previous judge had dismissed the lawsuits because he said the LIBOR setting process was collaborative rather than competitive. That judge also found any manipulation of the rate did not cause investors anti-competitive harm.

But a new judge disagreed with that Monday, and reinstated the suits.

'Appellants sustained their burden of showing injury by alleging that they paid artificially fixed higher prices,' Circuit Judge Dennis Jacobs wrote for a three-judge appeals panel.

LIBOR is a lending rate that is the basis for hundreds of trillions of dollars worth of consumer loans and savings rates around the world. It's a number, calculated and released daily by banks in London, that is supposed to show the rate at which they are lending money to each other for the short term.

• Two ex-bankers get jail time for trying to fix LIBOR
  
• ​Deutsche Bank fined $2.5 billion for role in rigging LIBOR

The banks are alleged to have lied about their internal rates to put the LIBOR rate at a more favorable level for them. That would move other interest rates for consumers and businesses higher or lower than otherwise should have been.

'A LIBOR increase of one per cent would have allegedly cost the Banks hundreds of millions of dollars,' the judges said in the ruling.

Rigging the rate cost the bank's customers — large institutions named in the lawsuit such as the University of California, and cities such as Baltimore, Houston and Philadelphia — billions over the years, money they are now trying to recoup.

The financial stakes of reinstating numerous pricey lawsuits for damages are huge. As the judges' put it in their decision: 'Requiring the banks to pay … damages to every plaintiff who ended up on the wrong side of an independent LIBOR‐denominated derivative swap would, if appellants' allegations were proved at trial, bankrupt 16 of the world's most important financial institutions.'

Individual lawsuits could still be thrown out, but Monday's ruling means they must all be reconsidered on a case-by-case basis.

In addition to the Royal Bank of Canada, the following banks are named in the suits:

• Royal Bank of Scotland.
• Bank of America.
• Société Générale.
• UBS.
• Barclays.
• Citigroup.
• Credit Suisse.
• Deutsche Bank.
• HSBC.
• JPMorgan Chase.
• Norinchukin Bank.
• Rabobank.
• Portigon.
• Bank of Tokyo-Mitsubishi.
• Lloyds.

Worldwide, those banks and others have already paid more than $9 billion in fines related to LIBOR rigging, and almost two dozen people have been charged in relation to the story. The Financial Conduct Authority, a regulator that governs banking institutions in London, has said it will look at better ways of calculating the rate in the wake of the scandal.

A lawyer for the banks says they're considering the ruling..."

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Former Trader Tom Hayes Ordered to Pay £878,000 ($1.2 Million) in LIBOR Case

From The New York Times:

...LONDON — A judge on Wednesday ordered Tom Hayes, a former UBS and Citigroup trader, to forfeit more than 878,000 pounds, or about $1.2 million, in bonuses and other compensation because of his conviction last year of manipulating a global benchmark interest rate known as LIBOR.

Mr. Hayes, who is serving an 11-year prison sentence, was the first person to go to trial in Britain and be convicted on criminal charges related to the manipulation of the London Interbank Offered Rate, or LIBOR.

The ensuing scandal has led to billions of dollars in fines and has rocked the reputations of some of the world’s biggest banks, including Barclays, the Royal Bank of Scotland, UBS and Deutsche Bank.

“The court acknowledged the challenges of quantifying the benefit from crime in this case,” Mark Thompson, the head of the Serious Fraud Office’s Proceeds of Crime Division, said in a news release. “The outcome is a substantial confiscation order, which Mr. Hayes will need to satisfy or face a further period of imprisonment.”

Mr. Hayes testified at a five-day confiscation proceeding last week that he lost nearly £1 million through personal trading after he was dismissed from Citigroup.

The trading losses, along with legal fees, wiped out much of his savings, Mr. Hayes said at the time.

The decision means that Mr. Hayes will probably be forced to sell his family’s home in Surrey.  The seven-bedroom home, known as Old Rectory, is worth about £1.7 million.

At a hearing on Wednesday, prosecutors said Mr. Hayes had only about £49,000 in cash, jewelry and other assets that could be sold quickly to satisfy the judgment.

The Serious Fraud Office had accused Mr. Hayes, who worked as a trader in Tokyo, of being a ringleader among more than a dozen traders in what authorities said was a brazen scheme to manipulate LIBOR, which helps determine the borrowing costs for trillions of dollars in loans. He was accused of engaging in misconduct from 2006 to 2010.

Mr. Hayes was convicted of conspiring to manipulate Libor in August. He was originally sentenced to 14 years in prison, but his sentence was reduced to 11 years in prison by an appellate court in December.

This month, an appeals court denied his request to have the Supreme Court, Britain’s highest court, review the case, making it more difficult for him to challenge his conviction.

Mr. Hayes is expected to ask the Criminal Case Review Commission, which examines miscarriages of justice, to examine his case. The independent body can refer criminal cases back to the appellate court for review.

At trial, Mr. Hayes’s lawyers argued that he was open about his conduct and did not believe at the time that he was acting dishonestly.

To set Libor and other rates, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and at varying maturities.

The evidence against Mr. Hayes included 82 hours of voluntary testimony that prosecutors said he provided to the Serious Fraud Office over five months. The authorities said he admitted to rigging rates and provided testimony against many former friends and colleagues, including his half brother.

Mr. Hayes testified during the trial that he decided to cooperate with British authorities because he feared being extradited to the United States, where he is also facing criminal charges, and wanted to remain close to his wife and child.

After providing the voluntary testimony to British authorities, Mr. Hayes stopped cooperating with prosecutors in 2013 and chose to plead not guilty to the charges in Britain.

Mr. Hayes remains the only person convicted at trial in Britain for manipulating LIBOR.

Prosecutors suffered a setback in January when six former brokers were acquitted of criminal charges that they helped Mr. Hayes manipulate LIBOR.

A third trial in London of others accused of manipulating Libor is expected to begin next month.

The first trial in the United States of people accused of rigging LIBOR ended in the conviction in November of two former London-based traders. The men were sentenced to prison terms this month...

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Six LIBOR Brokers Acquitted of Fraud

Here's a clip from today's Wall Street Journal article:

"...A jury acquitted six former brokers of fraudulently trying to manipulate a widely used benchmark interest rate, dealing a major blow to a yearslong international investigation.

The jury on Wednesday reached unanimous verdicts to acquit five of the brokers—former ICAP PLC brokers Colin Goodman and Danny Wilkinson, former R.P. Martin brokers Terry Farr and James Gilmour, and former Tullett Prebon broker Noel Cryan—on all counts. The sixth broker, ICAP’s Darrell Read, was acquitted on one count of conspiring to defraud, but the jury is still deliberating on another count against him.

All six men were accused of conspiring with former UBS Group and Citigroup Inc. trader Tom Hayes of trying to rig the London interbank offered rate, or LIBOR. Mr. Hayes was convicted and sentenced to 14 years in prison last August, although the sentence was subsequently reduced to 11 years.

The acquittals set off a scene of jubilation and tears in the courtroom, as the six brokers exchanged hugs and fist bumps and shouts of excitement with themselves, family members and lawyers..."

Click here for more...

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Former Rabobank Trader Paul Thompson, Accused of LIBOR Rigging, Arrested Down Under

Here's a clip from today's Wall Street Journal article:

"...A former Rabobank trader wanted by U.S. prosecutors for his alleged role in manipulating a key benchmark interest rate has been arrested, Australian authorities said Saturday.

Paul Thompson, an Australian citizen and former derivatives trader for Dutch bank Rabobank Groep NV in Singapore, was detained Thursday in the Western Australian capital of Perth following an extradition request by the U.S., a spokesperson from the Australian Attorney-General’s Department said.

Mr. Thompson is one of seven former Rabobank employees charged in connection with the world-wide LIBOR manipulation scandal that has ensnared at least 18 financial institutions and 35 individuals. The interest rate underpins bank lending products worth trillions of dollars—from mortgages to student loans.

'Mr. Thompson is wanted to face prosecution in the United States for wire and bank fraud offenses,'  the spokesperson said.

In a statement, Mr. Thompson’s wife, Robyn, said: 'There is no reason for Paul to be charged by the U.S. For this reason we were hoping that Paul could defend himself against any allegations in either Australia or the U.K., so he could have access to the necessary evidence, financial and emotional support to do this properly.'  Ms. Thompson also said his family would be seeking bail for the trader. A spokeswoman at Rabobank’s base in Utrecht declined to comment on the arrest and court case, saying Rabobank wasn’t a party in the current U.S. trial.

Two other former Rabobank traders, Anthony Allen and Anthony Conti, are currently facing court in New York on charges of conspiring to rig LIBOR for their own benefit between May 2006 and early 2011. If convicted, they could spend years in prison. Both men deny the allegations. Meanwhile, three former Rabobank colleagues have pleaded guilty to criminal charges of manipulating LIBOR. Another former Rabobank yen LIBOR derivatives trader, Tetsuya Motomura, hasn’t yet entered a plea. He was charged, alongside Mr. Thompson, with conspiracy to commit wire and bank fraud, according to the Justice Department.

The Rabobank trial parallels similar court cases under way in the U.K. So far, 13 individuals have been charged in the U.S. in connection with the LIBOR investigation. Some of the world’s largest banks have admitted to manipulating the rate, including Rabobank.

In 2013, when Rabobank agreed to pay $1.07 billion in a settlement with U.S., British, Dutch and Japanese authorities, a member of its executive board said: “It’s shameful what has happened.”

This summer, a British judge sentenced Tom Hayes, a former UBS and Citigroup trader, to 14 years in prison for manipulating LIBOR. He became to first individual to be criminally convicted in the world-wide probe..."

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