Jake's View

Singapore interbank rates manipulation claims are hyped

Brokers quote a wide bid-offer spread to those who request information but won't pay for it

PUBLISHED : Tuesday, 18 June, 2013, 12:00am
UPDATED : Tuesday, 18 June, 2013, 5:29am

HSBC, Standard Chartered, JP Morgan Chase, Barclays and DBS were among 20 banks at which 133 traders tried to manipulate the Singapore interbank offered rate (Sibor), swap offered rates and currency benchmarks in the city state, [the Monetary Authority of Singapore] said in a statement yesterday.

The regulator said it would make rigging key rates a criminal offence and bring supervision under its oversight.

SCMP, June 15


When you have a copycat market you may as well have copycat crimes. If it's good enough for London, it should be good enough for Singapore, too.

But let's think a little more about what sort of crime was committed here. Were some banks in Singapore consistently made to pay artificially high interest rates to other banks for borrowing money from them on the interbank market?

We can assume there were no allegations of traders establishing artificially low rates among themselves, at least not for money actually borrowed. It would raise suspicions of bribery and be more a matter for the Singapore police than the monetary authority.

But I can hardly conceive of it happening the other way, at least not consistently and in any size. The sharks on any bank dealing desk know their market by the time they are given any real scope to trade in it and they have their telephones on hand to call up any bank if they think they are being quoted a price that does not look right.

I'm not saying they won't try it on each other occasionally and occasionally succeed in doing so, too, but just not consistently and not in significant size. It just doesn't work that way in a market. I simply do not believe that a bald manipulation of interbank rates actually occurred, at least not for any real business transacted on the market.

I make that last proviso because, of course, what really happened here is that these traders were asked to quote their interbank rates by someone who wasn't intending to do any real business and the traders knew it.

That someone would be from a semi-official agency, and I don't know what it is called in Singapore. It is the entity that publishes daily figures of offered interbank rates in both Singapore and US dollars for all maturities.

It is valuable information. It gives the outsider a glimpse of how the market is moving and can be used to establish benchmarks for the issuance of a host of derivative securities.

The Singapore government certainly prizes the publication of these interbank rates. They help establish Singapore as a node on the worldwide network that underlies international finance. London has Libor and Singapore has Sibor. There's just a one letter difference. Singapore is really just as good, you see.

Traders do not like to part with valuable information for free. In financial markets, if you want to know the price trend of any security and the size in which it is being traded, you have to pay for that information by buying or selling some of it yourself.

You will get an honest bid-offer quote if you do this because the trader on the other side of the phone knows you might either buy or sell. He cannot afford to play silly games with you. If he doesn't want to trade with you, he will just quote you an overly wide bid-offer spread to send you away. He won't quote you false figures.

Why should he be straightforward, however, with someone who calls up and asks for a valuable piece of information without the intention of paying for it by actually doing some business?

The trader will tell that sort of person anything that comes to mind, and most probably what suits his trading desk's interest on that day.

It is what happened in London with the Libor "scandal", it is what I think has happened in Singapore, and it is what will happen anywhere to anyone who thinks he can just casually enter a market and be told where the market stands without paying for it as other market participants do.

That's how you deal with people who walk onto the playing field but won't play. I see no crime here.