Banks manipulated rates at the expense of retirees

U.S. investigators uncovered evidence that banks reaped millions of dollars in trading profits at the expense of companies and pension funds by manipulating a benchmark for interest-rate derivatives.

Recorded telephone calls and e-mails reviewed by the Commodity Futures Trading Commission show that traders at Wall Street banks instructed ICAP Plc brokers in Jersey City, New Jersey, to buy or sell as many interest-rate swaps as necessary to move the benchmark rate, known as ISDAfix, to a predetermined level…

By rigging the measure, the banks stood to profit on separate derivatives trades they had with clients who were seeking to hedge against moves in interest rates. Banks sought to change the value of the swaps because the ISDAfix rate sets prices for the other derivatives, which are used by firms from the California Public Employees’ Retirement System to Pacific Investment Management Co…

That may run afoul of the 2010 Dodd-Frank Act, which bars traders from intentionally interfering with the “orderly execution” of transactions that determine settlement prices.

The phone calls and e-mails emerging since Bloomberg News first reported in April on the rigging of ISDAfix add to growing evidence that banks have gained financially by distorting key financial gauges in world markets on everything from interest rates to currencies to commodities…

While the indexes under scrutiny are little known to the public, their influence extends to trillions of dollars in securities and derivatives. Britain’s markets regulator is looking into the currency market, where $4.7 trillion is exchanged each day, after Bloomberg News reported in June that traders have manipulated key rates for more than a decade.

RTFA if you’re interested in learning the dirty details. The process may seem complex; but, as usual, it boils down to banks and traders manipulating indexes, trades and sales to produce specific rates. Those produce profits for the firms – which is why the fraud. The traders in the firms get upwards of $7 million in commission for being good little crooks.

About these ads

One comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s