Libor

Libor (London interbank offered rate), is meant to represent how much banks pay to borrow from one another. It is also a benchmark for at least US$550 trillion worth of contracts spanning interest rate derivatives to residential mortgages. A scandal erupted after banks were found to be rigging the system. Barclays was fined US$453 million by global regulators in June 2012 for manipulating Libor, and UBS was hit with a US$1.5 billion bill in December 2012. In February 2013, RBS was fined US$612 million to settle US and UK regulatory charges of misconduct, manipulation, attempted manipulation and false reporting of yen, Swiss franc and dollar-denominated Libor. 

BusinessBanking & Finance

UK fraud prosecutor charges two brokers in Libor probe

PUBLISHED : Tuesday, 16 July, 2013, 8:26am
UPDATED : Tuesday, 16 July, 2013, 8:37am

Britain’s fraud prosecutor has charged two former brokers at interdealer broker RP Martin with rigging Libor benchmark interest rates, broadening the scope of the investigation into the scandal beyond big banks.

The Serious Fraud Office (SFO) said it had charged Terry Farr and James Gilmour with conspiracy to defraud, seven months after arresting them. They are the first staff from a broking firm charged in connection with the Libor investigation in Britain.

The two were arrested just before Christmas along with former UBS and Citigroup trader Tom Hayes, who was last month charged with eight counts of conspiracy to defraud as the SFO laid the groundwork for what could be the first Libor trial.

A central cog in the world financial system, the London interbank offered rate (Libor) is used as a reference for more than US$550 trillion (HK$4,267 trillion) in contracts ranging from complex derivatives to everyday credit card bills.

Trust in the benchmark was shaken by revelations last year that traders had routinely manipulated it, prompting a series of investigations by regulators and other authorities.

Britain’s Barclays and Royal Bank of Scotland and Switzerland’s UBS have been fined by US and UK authorities for manipulating Libor, and more banks and individuals are under investigation.

The charges against Farr and Gilmour will increase scrutiny of the role played in the scandal by interdealer brokers, who act as middlemen between the buyers and sellers of financial securities such as bonds, currencies or interest rate swaps.

In its settlement in December, UBS admitted that its traders paid bribes to brokers in return for their help rigging interest rates. The payments to unnamed brokers ran at 15,000 pounds (HK$175,648) per quarter.

Farr, 41, and Gilmour, 48, will appear before Westminster Magistrates’ Court on Friday for a preliminary hearing, the SFO said. Farr has been charged with two counts of conspiracy to defraud and Gilmour with one count.

RP Martin declined to comment.

Lawyers for Farr and Gilmour did not immediately respond to requests for comment.

Former UBS and Citi trader Hayes has not yet submitted a plea. He is expected to appear back in court in October. British prosecutors say they have extensive evidence against him.

Britain’s SFO was granted an extra 3.5 million pounds to investigate Libor last year and expects to get more than that this year. It has doubled its investigation team to 60.

David Green, who overhauled the SFO after taking over in April last year, is under pressure to show results after the SFO’s future was cast into doubt last year because of mixed success in the past.

Interdealer brokers, who quote prices for buying and selling bonds, currencies or swaps, speak to traders at banks daily, giving them a unique and privileged view of banks’ trading.

RP Martin, a UK-based broker with offices in Europe, America, Africa and Asia, is much smaller than rivals such as ICAP and Tullett Prebon.

RP Martin, which can trace its history back more than 100 years, is one of the oldest money broking businesses in the world, according to its website. It is known for specialising in trading foreign currencies and was considered a big player in the Swiss Franc market in the past.

Its chief executive, David Caplin, and Alan Farnan, a director at the firm, have left RP Martin, a source familiar with the matter said on Monday. According to the Financial Conduct Authority’s register the two were no longer active from May 14. Caplin and Farnan were not immediately available for comment.

Last month, British prosecutors alleged in court that Hayes conspired with employees from at least 10 financial institutions including brokers RP Martin, ICAP and Tullett Prebon, as well as a number of banks, to manipulate rates.

ICAP declined to comment on Monday. It has said previously that one of its global broking subsidiaries has been formally notified that it is the subject of a Financial Conduct Authority investigation. It has suspended one employee and three remain on administrative leave.

Tullett has said it is cooperating with UK authorities, and that it has not been informed that it or its brokers are under investigation.

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