ISDAfix-Referenzwert

ISDAfix benchmark reference.

The International Swaps and Derivatives Association, Inc., website at ISDA.org said the ISDAfix is “the leading benchmark for annual swap rates for swap transactions worldwide.” Bloomberg* BusinessWeek.com’s April 2013 article called ISDAfix “a benchmark in the $379 trillion market for interest rate swaps, which corporations and governments use to fine-tune their borrowing costs.” Süddeutsche Zeitung’s August 2013 estimate was that a $450 trillion market was affected by this benchmark. A Reuters.com* Jan. 2014 market estimate was even higher: “The organization’s ISDAfix benchmark is an important reference point underlying contracts in the $630 trillion derivatives market, and ICAP collects data for the U.S. dollar-denominated part of it.”

The data used to set the US$ section of the ISDAfix benchmark were provided by thirteen banks to the New Jersey office of a U.K. broker or “intermediary trader” known as ICAP. U.K. financial data company Thomson Reuters* calculated the benchmark prices from ICAP’s banks’ data for the US$ section and from data it collected directly from banks for the other currencies. ICAP published its ISDAfix benchmark prices on a Reuters page every morning at 11 a.m. and updated them throughout the day based on reported transactions. ICAP’s data entry was not automated.

The S.Z. said Germany’s BaFin finance regulator started investigating ISDAfix fixing after Bloomberg reported that the U.S.A.’s Commodity Futures Trading Commission financial regulator was investigating perhaps fifteen banks and about a dozen current and former ICAP traders for possible pricing collusion.

Background from Bloomberg BusinessWeek.com:

“In their simplest form, swaps are used by investors to exchange a fixed interest rate for a floating one, or vice versa. They also come in profoundly more complicated flavors, and altogether they constitute more than half of the $639 trillion global derivatives market. ISDAfix, used by traders to settle contracts and value positions, is commonly found in hybrid securities known as structured notes that are popular with wealthy investors. While they affect everything from pension annuities to commercial real estate investments, ISDAfix rates are esoteric even by the standards of structured finance. …

“…Banks could earn millions by persuading ICAP brokers to delay their manual entry of data. Publishing stale prices can boost profits for banks dramatically. On a $500 million swap that matures in 20 years, for example, a delay that prevents the instrument from moving one basis point (0.01 percent) equals $1 million in profit for the dealer. […Also, ICAP’s] brokers match dealers by phone, then enter transactions into the 19901 screen by hand. The firm is paid commissions based on the size of the trades it matches.”

FT.com described a 2010 FT.com article saying that “prices capable of influencing Isdafix through the rate-setting process sometimes appeared to move in ways beneficial to a handful of banks.”

The ICAP brokerage was also hired to execute many ISDAfix-related trades for reasons that could have included exerting extra influence on ICAP-mediated benchmarks, said an online article from Rupert Murdoch’s Wall Street Journal*.

A 25 Sep 2013 Bloomberg.com article seemed to indicate that brokers were particularly able to game off-market trading price benchmarks, particularly in slow economic times when those relying on brokers’ reported pricing data had fewer sales of their own to glean comparable pricing data from. “To promote market integrity, it is critical that benchmark interest rates be anchored in observable transactions,” said C.F.T.C. chair Gary Gensler in 2013.

Update on 26 Sep 2013: ICAP was fined £55 million “for control failures that allowed employees to engage in Libor rigging” said an online Financial Times article. After admitting L.I.B.O.R. control failures, which the U.K.’s Financial Conduct Authority also called a poor compliance culture, the huge brokerage firm argued against reducing its ISDAfix role, saying that would give undue influence to the banks submitting ISDAfix pricing data. ICAP, the world’s largest broker for interbank transactions, couldn’t have been gaming the ISDAfix benchmark’s timing because people would have noticed, ICAP said.

Update on 26 Jan 2014: It was announced that ICAP was to be removed from its middleman role in ISDAfix, which was to be restructured so that banks would submit US$ pricing data to Thomson Reuters directly, said Rupert Murdoch’s WSJ.com. Thomson Reuters has been collecting the non-US$ ISDAfix data directly from banks for years, said Reuters.com, but the US$ data from ICAP for >15 years: “[ICAP] had been providing ‘snapshots’ using transaction-based information from its BrokerTec platform in addition to information from recent deals, the second source said, but the process would now return purely to a poll of participating banks.” Apparently the snapshots involved removing some outliers and averaging the data. ICAP said, “We appreciate ISDA’s interest in having a consistent polling process across each of the relevant currencies and fixings.”

ISDA said moving ISDAfix pricing data for all currencies to Reuters is a first step toward their goal of defining the benchmark based on actual trades (“live prices from trading venues” said FT.com), not just data submitted by banks. The new system will also be automated: “The second stage will be the move to an automated, market-based ISDAfix rate setting process, which is expected to begin in the second quarter of 2014,” said an ISDA spokesperson. ISDA said they will create a code of conduct and oversight committee for the benchmark.

ICAP’s C.E.O. Michael Spencer helped create the ISDAfix benchmark fifteen years ago. Reporting on the ISDAfix benchmark described ISDA as the benchmark’s “overseer” and as a lobbying group.

Update on 09 Mar 2014: Thomson Reuters has been granted U.K. regulatory approval to create a benchmark services subsidiary to handle the ~160 benchmarks the company helps calculate, including L.I.B.O.R. International benchmark regulations are about to be tightened this summer, according to a letter sent last summer by the International Organization of Securities Commissions (“a global body of central banks. They include oversight of third parties and policies for managing conflicts of interest” –FT.com) warning companies they had one year before new stricter rules. “Administrators of financial market benchmarks have to prove by the July deadline that they have improved systems for monitoring submitted figures,” said FT.com.

* The U.K.’s Reuters press agency was reporting on financial news related to the ISDAfix and it belongs to Thomson Reuters (since the Canadian Thomson Corp. bought Reuters in 2008). The parent company of Bloomberg News “competes with ICAP in some businesses, including foreign-exchange and swaps trading, and with Thomson Reuters in providing financial news and data” according to their disclaimer in an ISDAfix article. Rupert Murdoch’s News Corp. owns the Wall Street Journal and owned Dow Jones from 2007 to 2010, when it sold it to the C.M.E., Chicago Mercantile Exchange/Chicago Board of Trade group.

(EESS dah feex   ref ah R-R-RENTS veaht.)

Straftatbestand

A criminal offense, fulfilling the conditions to meet the definition of a crime.

The outgoing E.U. parliament voted to pass draft rules making it a crime to manipulate interest rates in the European Union. After approval by the Member States, countries will have two years to implement the new rules, and their minimum penalty of at least four years in jail, into national laws. Countries may impose stricter penalties.

The E.U. parliament’s press release said the passed legislation criminalized more than interest rate manipulation:

“The draft rules lay down tougher criminal penalties, including prison terms, for serious market abuses such as unlawful disclosure of information, insider dealing or market manipulation and also inciting, aiding or abetting them.”

[…]

“Market manipulation offences punishable by a four-year jail term would include entering into a transaction or placing an order which gives false or misleading signals about the supply, demand or price of one or more financial instruments or providing false or misleading inputs to manipulate the calculation of benchmarks, such as the London Interbank Offered Rate (LIBOR) or Euro Interbank Offered Rate (EURIBOR).

“Insider dealing offences punishable by fouryears’ imprisonment include those in which inside information is used with intent to buy or sell financial instruments or to cancel or amend an order.”

(SHTROFF tot beh SHTOND.)

L.I.B.O.R.-Klagen

L.I.B.O.R. lawsuits.

The U.S. company Fannie Mae has filed complaints seeking about half a billion euros in damages from multiple banks around the world for L.I.B.O.R. benchmark interest rate manipulation. Deutsche Bank is one of the defendants.

Update on 01 Nov 2013: ZDF heute journal financial correspondent Frank Bethmann said the many banks found to have participated in L.I.B.O.R. manipulation have been fined about 2.7 billion euros total by the world’s bank oversight authorities alone so far. Now more and more company lawsuits keep “fluttering in,” making them possibly the costlier threat. He said Deutsche Bank had now set aside 4.1 billion euros for legal fees. “But that shirt could prove too short as well, particularly in the U.S.A.”

Update on 06 Nov 2013: FAZ.net reported that insiders told Reuters news agency that before 2014 the E.U. competition commissioner wants to fine six banks a total of 1.5 billion euros for L.I.B.O.R. benchmark manipulation, including Barclays, Royal Bank of Scotland (R.B.S.), the Dutch Rabobank (“genossenschaftlich” bank meaning it started life as a mutual?), and the “broker” I.C.A.P. The Swiss bank U.B.S. will be excused from this fine—said to be the largest bank fine in E.U. history—because they were the first to testify. These six banks admitted this particular wrongdoing and as a result the E.U. said it will reduce those fines by 10%.

This set of fines is for the yen L.I.B.O.R. manipulation subscandal of the L.I.B.O.R. manipulation scandal. Deutsche Bank may be facing additional U.K. and U.S. fines for U.S. dollar L.I.B.O.R. manipulation.

Financial regulators around the world are also investigating more than a dozen banks for Eur.I.B.O.R. benchmark manipulation. On 06 Nov 2013 FAZ.net reported that insiders said the E.U. Commission was negotiating fines to half a dozen banks for that as well, including Deutsche Bank and possibly Royal Bank of Scotland and Société Générale. FAZ.net reported the U.K.’s Financial Times reported each of these six will have to pay up to 800 million euros for that set of fines. And that Bloomberg.com reported the British bank H.B.S.C. had withdrawn from those fine negotiations, giving up the proffered 10% fine rebate for admitting wrongdoing.

German Wikipedia said the Eur.I.B.O.R. is set on the basis of data submitted by 32 European “credit institutions,” minus the top 15% and bottom 15% outliers, to the “information agency” Thomson Reuters. The Eur.I.B.O.R. is then published by Reuters.

English Wikipedia said the Eur.I.B.O.R. was created by combining “domestic” benchmark rates, such as from Paris, Frankfurt and Helsinki, in 1999. It said there is still a separate Euro L.I.B.O.R. set in London, based on data from 16 banks.

(LEE boar CLOG en.)

Erdgaspreis

Price of natural gas. A March 2013 article in Rupert Murdoch’s Wall Street Journal mentioned that the Commodity Futures Trading Commission said the Libor benchmarks manipulation scandal came to their attention after “firms and traders” were sanctioned for reporting false data to energy index compilers in attempts to manipulate natural gas prices between 2003 and 2005.

(ED gauze prize.)

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