Wall Street Warned by U.S. Regulators to Speed Up Libor Exit
Jesse Hamilton, Alex Harris, and Christopher Condon, 11 June 2021
Wall Street banks must speed up their efforts to stop using Libor, regulators said Friday, issuing one of their sternest warnings yet about abandoning the scandal-plagued benchmark.
From Treasury Secretary Janet Yellen to Federal Reserve Chairman Jerome Powell, watchdogs made clear during a meeting of the Financial Stability Oversight Council that time is running out. The admonishment — coming from the heads of all of the U.S.’s most powerful financial agencies — marked a remarkably high-profile push to light a fire under banks including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. Continue reading “Article: Wall Street Warned by U.S. Regulators to Speed Up Libor Exit”
Libor Replacement Race Heats Up
Julia-Ambra Verlaine, 13 May 2021
New contenders are emerging in the race to get rid of the London interbank offered rate by year-end.
Bank of America Corp. and JPMorgan Chase & Co. traded the first complex derivative using a Bloomberg index crafted to replace Libor, exchanging $250 million worth of an interest-rate swap earlier this month. The Bloomberg Short Term Bank Yield Index competes with the alternative preferred by regulators including the Federal Reserve Bank of New York. Continue reading “Article: Libor Replacement Race Heats Up”
CFTC Whistleblower Program in Peril Over Potential $100 Million-Plus Payout
Alexandra Berzon, 11 May 2021
The Commodity Futures Trading Commission’s whistleblower program is in turmoil over a potential payout exceeding $100 million to a former Deutsche Bank AG executive—one so large it would deplete the agency’s whistleblower funds and has led it to seek congressional action.
The executive had provided information that helped CFTC and Justice Department investigations that led to roughly $2.5 billion in settlements with Deutsche Bank in 2015, including $800 million with the CFTC. They alleged that the bank manipulated the London interbank offered rate, or Libor, a benchmark interest rate used to set short-term loans for global banks. Continue reading “Article: CFTC Whistleblower Program in Peril Over Potential $100 Million-Plus Payout”
End of Libor stirs anger on Wall Street
JOHN DIZARD , 24 April 2021
Ending the use of dollar Libor, the scandal-tinged benchmark bank funding rate, was always going to be problematic. Some Libor traders went to jail for collusion and self-enrichment. The Fed and its fellow regulators put together a public-private committee on Libor replacement big enough to swamp a ferry boat.
That hasn’t entirely worked. The use of Libor as a base rate for funding costs is bigger than ever — around $225tn of derivatives, consumer loans, corporate loans and cash investments. Nevertheless, the use of Libor is supposed to end, mostly, on December 31 for some Libor rates and by mid-2023 for those remaining.
The process of finding practical ways to replace it have led to increasingly audible shouting and blame trading between the major dealing banks and the Fed, along with the central bank’s entourage of agencies, academics, policy wonks and whisperers. Continue reading “Article: End of Libor stirs anger on Wall Street”
Libor-Replacement Competitor Gains Strength From New Offerings
Julia-Ambra Verlaine, 19 April 2021
Financial industry pioneer Richard Sandor is ramping up his efforts to compete in the race to replace the London interbank offered rate, which helps set borrowing costs on everything from mortgages to business loans.
Mr. Sandor—who helped create interest-rate futures in the 1970s and launched his own replacement for the scandal-marred short-term interest-rate benchmark in 2019—is expanding offerings to include one-month and three-month borrowing rates. Ameribor is set on the American Financial Exchange, which was founded by Mr. Sandor and is where banks lend to each other through mutual lines of credit. Some small and medium-size lenders favor Ameribor because it changes with their funding costs. Continue reading “Article: Libor-Replacement Competitor Gains Strength From New Offerings”
Libor Contracts Caught in Limbo Spur Calls for Congressional Fix
Alexandra Harris, 15 April 2021
President Joe Biden’s administration and the Federal Reserve are pushing for U.S. lawmakers to ease Wall Street’s transition away from the London interbank offered rate and help head off legal headaches for many contracts that risk being left in limbo under present plans.
In testimony set to be delivered at a House Financial Services subcommittee meeting Thursday, officials from both the Treasury Department and the Fed will voice support for federal legislation that would allow for an orderly way to shift existing financial products from the discredited set of reference rates, which currently underpins trillions of dollars in securities, derivatives and other contracts. Continue reading “Article: Libor Contracts Caught in Limbo Spur Calls for Congressional Fix”
Global Derivatives Cling to Libor Even as Its Retirement Nears
William Shaw and Alex Harris, 14 April 2021
Anyone hoping Libor’s death notice would accelerate the shift of hundreds of trillions of dollars worth of derivatives toward replacement benchmarks will be sorely disappointed.
In the U.S, just 4.7% of contracts traded in March were pegged to the Secured Overnight Financing Rate, or SOFR, the benchmark slated to replace the London interbank offered rate, according to data from the International Swaps and Derivatives Association released Wednesday. That’s down from 5% in February. Continue reading “Article: Global Derivatives Cling to Libor Even as Its Retirement Nears”
Ex-Deutsche Traders Urge 2nd Circ. To Nix Libor Convictions
Stewart Bishop, 14 April 2021
Two former Deutsche Bank traders on Wednesday argued that the Second Circuit should reverse their convictions for Libor-rigging, saying the government failed to prove they violated any of the applicable rules governing the benchmark interest rate.
Matthew Connolly and Gavin Black in 2018 were convicted at trial of wire fraud and conspiracy for their roles in a purported scheme to tweak lending estimates included in Libor to benefit the bank’s derivatives trading positions. Continue reading “Article: Ex-Deutsche Traders Urge 2nd Circ. To Nix Libor Convictions”
Ex-Trader Sues RBS For £1.1M In Unpaid Bonuses
Joanne Faulkner, 12 April 2021
A former Royal Bank of Scotland trader is suing the lender for more than £1.1 million ($1.5 million), claiming he is being denied promised bonuses after being unlawfully dismissed during a regulatory investigation into the Libor rate-rigging scandal.
Arif Hussein, former managing director of a trading division, argues in a High Court claim that has recently been made public that RBS has wrongfully classified his firing from the lender in 2014 as “for cause.” This came despite an employment tribunal determining he had been unlawfully dismissed a year later, the claim added. Continue reading “Article: Ex-Trader Sues RBS For £1.1M In Unpaid Bonuses”
Losing LIBOR in the Capital Markets — A Reprieve?
Dawn Holicky Pruitt, 10 March 2021
As reported in our previous alert “Losing LIBOR in the Capital Markets — Are You Ready?,” the anticipated date for discontinuation of the London Interbank Offered Rate (LIBOR) is approaching. While LIBOR is a widely used benchmark rate for U.S. dollar-denominated floating-rate debt securities and other financial products, LIBOR was the subject of widespread market manipulation and ineffective regulation. In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (FCA) announced its intention to stop persuading or compelling banks to submit rates for the calculation of LIBOR to its administrator after 2021. This announcement strengthened the objective of the Alternative Reference Rates Committee (ARRC), a committee convened by U.S. regulators to identify LIBOR alternatives in the U.S. market.
While market participants were warned that LIBOR may cease to exist after 2021, the ICE Benchmark Administration Limited (IBA), as the administrator of LIBOR, recently announced the results of a November 2020 consultation regarding the upcoming discontinuation. Although certain lesser-utilized U.S. dollar-denominated LIBOR tenors will cease to be published after December 31, 2021, the IBA announced it will continue publishing widely used tenors (such as one-month LIBOR and three-month LIBOR) until June 30, 2023. The FCA’s support for the extension provides confidence regarding the ongoing representativeness of the continuing U.S. dollar-denominated LIBOR tenors until June 30, 2023.
The extension of widely used U.S. dollar-denominated LIBOR tenors provides issuers of LIBOR-linked debt securities with additional time to prepare for LIBOR discontinuance. In particular, the extension may, in many cases, allow for a natural end to LIBOR-linked debt securities through maturation or the exercise by issuers of redemption rights.
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The LIBOR Scandal
Jason Fernando, 24 February 2021
What Is the LIBOR Scandal?
The LIBOR Scandal was a highly-publicized scheme in which bankers at several major financial institutions colluded with each other to manipulate the London Interbank Offered Rate (LIBOR). The scandal sowed distrust in the financial industry and led to a wave of fines, lawsuits, and regulatory actions. Although the scandal came to light in 2012, there is evidence suggesting that the collusion in question had been ongoing since as early as 2003.
Many leading financial institutions were implicated in the scandal, including Deutsche Bank (DB), Barclays (BCS), Citigroup (C), JPMorgan Chase (JPM), and the Royal Bank of Scotland (RBS).
As a result of the rate fixing scandal, questions around LIBOR’s validity as a credible benchmark rate have arisen and it is now being phased out. According to the Federal Reserve and regulators in the U.K., LIBOR will be phased out by June 30, 2023, and will be replaced by the Secured Overnight Financing Rate (SOFR). As part of this phase-out, LIBOR one-week and two-month USD LIBOR rates will no longer be published after December 31, 2021. Continue reading “Article: The LIBOR Scandal”
Barclays Escapes UK Municipalities’ Libor Loan Suits
Joanne Faulkner, 22 February 2021
A judge said on Monday that eight local councils in England cannot get out of Libor-linked loans they signed with Barclays before the bank’s involvement in the rate-rigging scandal was revealed because they could not prove the lender had acted dishonestly.
High Court Judge Sara Cockerill said that two claims focusing on how interest rates tied to the loans were influenced by the London Interbank Offered Rate had “no real prospect of success.” The local authorities could not prove that Barclays had knowingly made false representations when it sold the swaps between 2006 and 2008, the judge said. Continue reading “Article: Barclays Escapes UK Municipalities’ Libor Loan Suits”
Five Banks Settle LIBOR Manipulation Suit for $22 Million
Meg Slachetka, 13 October 2020
Last week, Judge Naomi Buchwald of the Southern District of New York provided final approval of a nearly $22 million settlement between a class of indirect investors and five Wall Street banks that the plaintiff investors accused of manipulating the London Interbank Offered Rate (LIBOR) in violation of the Sherman Act. The plaintiffs are over-the-counter (OTC) investors who indirectly interacted with the defendant banks via interest rate swaps and other transactions.
These plaintiffs made purchases from other banks that are not defendants in the case; the five settling defendants are JPMorgan, Citibank, Bank of America, HSBC, and Barclays. The suit is one of many filed after Barclays admitted in 2012 that it had manipulated LIBOR. Continue reading “Article: Five Banks Settle LIBOR Manipulation Suit for $22 Million”
Market manipulation persists in London’s financial district
LLB EDITOR, 27 April 2020
A total of 822 reports of suspected market manipulation were made to the FCA last year (year end Dec 31 2019) by market participants, suggesting that the problem is far from being eradicated, says RPC, the City-headquartered law firm.
The number of reports of market manipulation saw a slight increase last year, rising from 812 in 2018.
Market manipulation is the attempt to artificially increase or decrease the price of an asset, index or its derivative in order to make a gain. Following the LIBOR scandal that broke in 2012, the laws relating to market manipulation were significantly tightened up. This included criminalising the attempted manipulation of benchmarks (Financial Services Act 2012). Continue reading “Article: Market manipulation persists in London’s financial district”
UBS agrees to pay $68M in multistate settlement over Libor manipulation claims
Declan Harty, 21 December 2018
UBS AG agreed to pay $68 million as part of settlement with 39 U.S. states and the District of Columbia related to the Swiss banking giant’s alleged manipulation of the London interbank offered rate.
Led by New York Attorney General Barbara Underwood, the UBS settlement is the latest in a string of agreements state regulators have recently reached with banks that were allegedly altering Libor submissions for their own benefit leading up to and around the financial crisis of 2008.
UBS was accused of misrepresenting its U.S. dollar-tied Libor submissions to protect its reputation, according to a press release from Underwood’s office. The 40 attorneys general who were part of the settlement also claimed UBS manipulated Yen Libor submissions to favor its derivative trading positions. Continue reading “Article: UBS agrees to pay $68M in multistate settlement over Libor manipulation claims”