UBS Libor fixing fine puts brokers under scrutiny

Wed Dec 19, 2012 11:26am EST
 
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By Tommy Wilkes and Luke Jeffs

LONDON (Reuters) - The complex world of inter-dealer broking took center stage on Wednesday as UBS UBSN.VX admitted that its traders paid bribes to brokers in return for their help rigging interest rates.

Britain's financial watchdog said unnamed brokers accepted "corrupt" payments - running at 15,000 pounds ($24,400) per quarter - from UBS for their help in manipulating the Libor benchmark rate.

They also engaged in pointless "wash" trades - where a bank does two trades that effectively cancel each other out - to earn more than 170,000 pounds in commission, the Financial Services Authority (FSA) said in a statement.

"During the relevant period, the UBS traders (one of whom was a manager) were directly involved in making more than 1,000 documented requests to 11 brokers at six broker firms," it said after UBS was hit with a $1.5 billion fine by British, Swiss and U.S. regulators for what the FSA called "pervasive" manipulation of global benchmark interest rates by dozens of UBS employees.

Questions have been raised about the role of broker-dealers in banks' rigging of Libor, used to price $350 trillion of contracts, since the scandal first broke. As the middlemen matching buyers and sellers of all sorts of financial securities, they speak to traders at banks daily, giving them a unique and privileged view of banks' trading activity.

When Britain's Serious Fraud Office (SFO) detained three men in connection with Libor rigging last week, the first arrests in the probe, two worked for an inter-dealer broker.

Broker-dealers spend their days reeling off prices down a phone, or through an electronic messenger, to traders at banks and other clients. Diligent ones speak to their clients every morning - giving them insight into banks' trading activity that could have been used to co-ordinate rate rigging.

One of those arrested was ex-UBS trader Thomas Hayes, according to a source familiar with the situation, while the others, Terry Farr and James Gilmour, both worked at London inter-dealer broker RP Martin, according to a separate source, who also spoke on condition of anonymity.   Continued...

 
An employee walks past a logo of Swiss bank UBS in Zurich December 19, 2012. REUTERS/Michael Buholzer