UBS Libor fixing fine puts brokers under scrutiny

Wed Dec 19, 2012 11:21am EST
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* Broker dealers accepted bribes from UBS to rig rates

* 11 brokers at six firms contacted by bank traders

* Revelations follow arrests, suspensions

By Tommy Wilkes and Luke Jeffs

LONDON, Dec 19 (Reuters) - The complex world of inter-dealer broking took centre stage on Wednesday as UBS 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.   Continued...