Jake's View

In Hibor debate, remember you have to pay for good data

Whatever mechanism is adopted to try to make the interbank market reveal valuable truths without payment, it will always be subverted

PUBLISHED : Tuesday, 12 February, 2013, 12:00am
UPDATED : Tuesday, 12 February, 2013, 5:08am

The Hong Kong Monetary Authority's deputy chief executive Arthur Yuen Kwok-hang said new measures, to be rolled out in the next six months, would improve the setting of the Hong Kong interbank offered rate (Hibor) and would bring the city's rules in line with reforms elsewhere.

SCMP, Feb 7

We are already very much in line. In characteristic copycat fashion the HKMA started an investigation of the Swiss bank UBS a day after it paid up for alleged Libor (London interbank offered rate) infringements. Hibor rhymes with Libor. How much more guilt do you need?

UBS, in case you didn't know it, is like one of those placid Swiss cows that inhabit the alpine meadows with bells hanging from their necks to tell their owners where they roam.

"Milk me, milk me, milk me," rings the UBS bell and hungry regulators and lawyers around the world quickly oblige, milking it for billions in fines and fees, all the while trying to make you believe that it's a slavering New York wolf instead of a big dumb Swiss cow. Moral of the story: they chew the cud too much at UBS.

I always think that the American versifier Ogden Nash best identified the true beneficiaries of purported financial crimes:

Professional people have no cares
Whatever happens, they get theirs

I use the word "purported" deliberately in the case of these Libor and Hibor rigging allegations. What crusading lawyers do not understand, or deliberately ignore in pursuit of their fees and fines, is that information has value in the financial world. To get it you pay for it.

If you call up a dealer on an equities trading desk, for instance, and ask "What's your bid/offer on Cheung Kong?" that dealer has a reasonable expectation that you want to deal in shares of Cheung Kong.

The bid and offer prices he gives you, particularly if he also tells you the size in which he is willing to deal, constitute valuable information. They tell you where the market stands at the moment. If you consistently know this you stand to make a good deal of money. You are therefore under an obligation to pay for it by doing business with the people you ask.

But if the dealer thinks your interest frivolous or directed towards ends that bring him no benefit, he is entirely within his rights to quote you a bid/offer spread so wide that you hang up the phone on him. Go away, he says, and you do.

The interest rates at which key banks are willing at any time to deal with each other on a range of maturities in any given currency constitute valuable information. The yields of hundreds of billions of dollars worth of other financial instruments rest on these rates.

Yet the dealers who are asked for them every day for the purpose of setting Libor (and Hibor) also know they will get no business from divulging them. Not surprisingly, they do not take always take these things seriously. I entirely sympathise. Why part with valuable information for free? If you really want to know, pay up. I see no crime here.

But has Hibor been rigged? I offer you the evidence of the chart showing comparative interest rates since the beginning of last year. Do you see that straight-as-an-arrow blue line? That is 3-month Hibor. Rigged? Shame on you for such a scurrilous libel. Just carefully guided, tenderly nurtured, lovingly cherished, that's all.

And it's my belief that whatever mechanism is adopted to try to make the interbank market reveal valuable truths without payment will always be subverted.