On June 27, 2012, the Commodity Futures Trading Commission, CFTC, filed a legal order against Barclays Bank. A move that has shocked the financial world. As more and more people, cities and even countries have gone bankrupt, Barclays has been making profits at alarming rates.
1. Barclays. Through the Acts of its Swaps Traders and Submitters. Made False LIBOR Reports and Attempted to Manipulate LIBOR
a. LIBOR and the BBA Fixing of LIBOR
The BBA is a U.K. trade association for the u.K. banking and financial services sector and is comprised of member banks. The BBA is not regulated. The BBA defines the term LIBOR and the criteria a panel bank is required to use in making its submissions, selects the banks for the LIBOR panels for each currency, and oversees the process of LIBOR submissions and publication of LIBOR. The BBA also enters into licensing agreements with third parties, including parties in the U.S., to allow dissemination ofthe LIBOR data. Thomson Reuters is the BBA’s agent for the collection, calculation and publication ofthe daily LIBORs.
The BBA represents that LIBOR is intended to be a barometer to measure strain in money markets, that it often is a gauge ofthe market’s expectation offuture central banle interest rates, and that approximately $350 trillion of notional swaps and $10 trillion of loans are indexed to LIBOR. LIBOR also is the basis for settlement of interest rate futures and options contracts on many of the world’s major futures and options exchanges, including the three-month and one- month Eurodollar contracts on the Chicago Mercantile Exchange (“CME”). Measured by the notional value of open interest, the CME Eurodollar contract is the most liquid and largest notionalfuturescontracttradedontheCMEandintheworld. Thetotaltradedvolumeofthe CME Eurodollar contract had a notional value of over $437 trillion in 2009 and $564 trillion in 2011.
A wealth of emails were presented, giving irrefutable evidence that Barclays was manipulating their own credit score — to generate almost unthinkably vast profits.
Here is a link to download the legal order. http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfbarclaysorder062712.pdf
This may not seem like a big deal at first but in order for Barclays to have rigged their own credit score, they accused of conspiring with the biggest banks in the world.
These are the banks they are supposedly in competition with.
The world may have just found out that all the biggest banks are working together and that is exactly what they are being accused of.
Criminal charges are being prepared as a result of this move by the US Department of Justice.
Chairman Gary Gensler
June 27, 2012
Washington, DC – Commodity Futures Trading Commission Chairman Gary Gensler today issued the following statement:
I’d like now to review the CFTC’s recent order against Barclays concerning the benchmarks LIBOR and Euribor.
People taking out small business loans, credit cards and mortgages, as well as big companies involved in complex transactions, all depend upon the honesty of benchmark rates like LIBOR for the cost of their borrowings. Banks must not attempt to influence LIBOR, Euribor or other indices based upon concerns about their reputation or the profitability of their trading positions.
LIBOR and Euribor are indices at the center of the capital markets for both borrowings and derivatives contracts. LIBOR is the reference index for the largest open interest of contracts in both the U.S. futures markets and swaps markets. U.S. Dollar LIBOR is the basis for the settlement of the three-month Eurodollar futures contracts traded on the Chicago Mercantile Exchange (CME), with a notional value of about $12 trillion as of the end of June. U.S. Dollar LIBOR’s traded volume in 2011 on the CME was a notional value exceeding $564 trillion. According to the British Bankers Association, swaps with a total notional value of approximately $350 trillion and loans amounting to $10 trillion are indexed to LIBOR.
The CFTC initiated in April of 2008 a review of LIBOR after media reports raised questions about the integrity of the index. Thereafter, we began coordinating with the United Kingdom’s Financial Services Authority (FSA), which helped us facilitate information requests. The FSA and the U.S. Department of Justice subsequently joined the CFTC with regard to the Barclays matter, and it has been a collaborative effort throughout.
To conduct such a complicated case, the CFTC enforcement staff had to sift through a voluminous number of documents and audio recordings that spanned many years.
The CFTC’s Order found that Barclays traders and employees responsible for determining the bank’s LIBOR and Euribor submissions attempted to manipulate and made false reports concerning both benchmark interest rates to benefit the bank’s derivatives trading positions. The conduct occurred regularly and was pervasive. Barclays’ traders located at least in New York, London and Tokyo asked Barclays’ submitters to submit particular rates to benefit their derivatives trading positions. In addition, certain Barclays Euro swap traders coordinated with and aided and abetted traders at other banks in each other’s attempts to manipulate Euribor.
The Order also found that throughout the financial crisis, as a result of instructions from Barclays’ senior management, the bank routinely made artificially low LIBOR submissions. Submitters were told not to submit at levels where Barclays was “sticking its head above the parapet.” The senior management directive was intended to fend off negative public perception about Barclays’ financial condition.
The CFTC’s Order required Barclays to pay a $200 million civil monetary penalty for attempted manipulation of and false reporting concerning LIBOR and Euribor. In addition, Barclays is required to implement measures to ensure its future submissions are honest.
Among other things, these requirements included:
• Making submissions based on a transaction-focused methodology;
• Implementing firewalls to prevent improper communications, including between traders and submitters;
• Preparing and retaining documents concerning submissions and certain relevant communications; and
• Implementing auditing, monitoring and training measures concerning submissions and related processes, including making regular reports to the CFTC.
The CFTC has and will continue vigorously to use our enforcement and regulatory authorities to protect the public, promote market integrity, and ensure that these benchmarks and other indices are free of manipulative conduct and false information. The Commodity Exchange Act (CEA) is clear in its prohibitions against attempted and actual manipulation of futures, swaps and commodity prices. Further, the CEA’s Section 9(a)(2) prohibits knowingly making false reports of market information that affects or tends to affect the price of a commodity.
The FSA is reviewing the LIBOR benchmark, and will be making suggestions as to how to improve it. Moving forward, the CFTC stands ready to assist the FSA on its review of LIBOR and how to best assure that LIBOR, or any alternative benchmark that might emerge, is not susceptible to attempted manipulation or false reporting. We look forward to working with regulators and market participants here and abroad to ensure that benchmarks for interest rates that touch borrowers and lenders around the globe are reliable and honest.
If these key benchmarks are based on observable transactions, borrowers, lenders and derivatives users around the globe all benefit. If these key benchmarks are not based on observable transactions, I believe their integrity will continue to be subject to question. And if these key benchmarks are not based on honest submissions, we all lose.