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Barclays' traders emails reveal extent of LIBOR manipulation

UK and US regulators impose massive £290 million fine on the bank

Emails and instant messages between Barclays and other bank traders have revealed the extent to which bankers tried to manipulate banking lending rates, leading to the Financial Services Authority's (FSA) biggest ever fine.

In addition to a $360 million (£231.5 million) fine that Barclays has had to pay to the US Commodity Futures Trading Commission (CFTC) and Department of Justice (DoJ) the FSA yesterday fined Barclays Bank £59.5 million for misconduct relating to the reference rates at which banks lend to each other, known as London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). These rates also affect loan and mortgage payments.

According to the FSA, Barclays's misconduct took place between January 2005 and June 2010. The fine also took into consideration the fact that Barclays did not have the relevant systems and controls in place around its rates submissions processes until December 2009.

The process of setting LIBOR and EURIBOR rates requires banks to make submissions each day based on borrowing and lending between banks. The average of the rates from the submissions are then calculated to produce LIBOR and EURIBOR.

Interest rate derivatives traders - who profit directly from trading on tthe movement of these rates - should not be included in this process.

However, the FSA found that Barclays breached rules by making submissions that took into account requests made by its derivatives traders, and of traders at other banks.

"Where Barclays made submissions which took into account the requests of its own derivative traders, or sought to influence the submissions of other banks, there was a risk that the published LIBOR and EURIBOR rates would be manipulated.

"Barclays could have benefitted from this misconduct to the detriment of other market participants. Where Barclays acted in concert with other banks, the risk of manipulation increased materially," the FSA said in its final notice to Barclays.

The people responsible for making submissions at Barclays work on the bank's Money Markets Desk, inputting Barclay's submissions into an electronic spreadsheet once they have decided on the rates. These submissions are then sent to Thomson Reuters, which collates the submissions data from the banks involved and works out the average, and final benchmark rates.

The FSA investigation found "a large amount of email and instant message evidence" that showed Barclays' derivatives traders making requests for particular submissions, with the submitting staff on the Money Markets Desk stating that they had taken the traders' requests into account.

"At times, requests made by email alone were sent by the derivatives traders nearly every day.

"For example, requests were made by Barclays' US dollar derivatives traders on 16 out of the 20 days on which Barclays made US dollar LIBOR submissions in February 2006," the FSA said.

There was also evidence of external traders sending requests to Barclays' traders, which were then passed on to Barclays' submitters.

An analysis of Barclays' submissions also showed that they were consistent with the traders' requests on the majority of occasions.

The traders would use email to request high or low submissions regularly.

For instance, a trader wrote on 10 March 2006: "We have an unbelievably large set on Monday (the IMM). We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help."

The following email exchange between a trader and a submitter took place on 13 March 2006, indicating clearly that both parties knew what they were doing, regularly, was wrong.

Trader: "The big day [has] arrived... My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you'll go for 3m?"

Submitter: "I am going 90 altho 91 is what I should be posting".

Trader: "[...] when i retire and write a book about this business your name will be written in golden letters [...]"

Submitter: "I would prefer this [to] not be in any book!"

Meanwhile, another email exchange shows an external trader asking to influence Barclay's rates submission, on 26 October 2006.

The external trader said asked a Barclays trader for a lower three-month LIBOR submission, writing that: "If it comes in unchanged I'm a dead man".

The Barclays trader said he would "have a chat", and Barclays' submission on that day had moved.

This led to the external trader thanking the Barclays trader: "Dude. I owe you big time! Cover over one day after work and I'm opening a bottle of Bollinger".

The reverse, Barclays trader trying to influence other banks' submissions, also occurred, the FSA investigation found.

Tracey McDermott, acting director of enforcement and financial crime, said: "Barclays' misconduct was serious, widespread and extended over a number of years.

"Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place. Barclays' behaviour threatened the integrity of the rates with the risk of serious harm to other market participants."


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