Banks Settle Interest Rate Manipulation Lawsuit

Seven banks have settled a class action lawsuit brought in the US regarding the ISDAfix. The ISDAfix is a benchmark rate used in daily pricing of trillions of US dollars in derivatives, including interest rate swaps, futures and exchange traded options. The seven are JP Morgan, RBS, Deutsche, Credit Suisse, Barclay's, Citi and BOA.

The lead law firm, Scott + Scott, is the same as in the FX benchmark manipulation class action suit. The charges are similar to the FX suit and to the LIBOR charges as well. The charges included placing numerous orders at the close ("banging the close"), collusion leading to to submission of identical orders and placing off-market rates. Eight other banks remain in the suit. If this follows the trajectory of the FX suit, banks that settle later will tend to pay larger settlements.

Report CFTC Finds Criminal Behavior in ISDAFIX Investigation

As we reported last week, the first lawsuit was filed in the ISDAFIX controversy.  This week Bloomberg states that the CFTC, which is limited to bringing civil cases, reported evidence of criminal behavior to the DOJ. The DOJ can then determine whether to pursue a criminal investigation.  Bloomberg bases the article on a person familiar with this matter.

The report alleges that ICAP, a broker with a central role in setting ISDAFIX through January 2014, accepted large numbers of trades from banks at the close, attempting to influence the fix.  This "banging the close" is similarly charged in FX benchmark cases.  In addition to these actual trades, banks also submitted rate quotes as part of the process of setting ISDAFIX.  The lawsuit last week alleged that identical quotes were submitted by multiple banks on most days, down to the thousandth of a basis point.

The ISDAFIX cases may have a better chance of reaching antitrust status, unlike the LIBOR case, due to the actual trades involved and the lack of reasons other than profit for banks entering into these ISDAFIX trades.

Another Shoe Drops: Pension Sues Banks Alleging Manipulation of ISDAfix

Hot off the presses, Bloomberg reports that the Alaska Electrical Pension Fund yesterday filed suit against the banks responsible for contributing to the ISDAfix rates. Those of you who want more about this brewing controversy can read my report here.  This comes on the heels of lawsuits alleging manipulation in gold, FX rates and LIBOR.  I'm sure there will be more to come as additional information comes to light. 

International Financial Law Review on ISDAfix

For those who can't get enough of ISDAfix, he IFLR just published The ISDAfix Scandal: Injured Investors. There is still surprisingly little information about the ISDAfix scandal. I haven't seen any banks enter into a settlement with regulatory authorities where they reveal how ISDAfix was manipulated and, just as importantly, the duration and the degree of any manipulation if it occurred.  Until that data become available, there's not much more to discuss. 

Something Funny Happened on the Way to Court

News about the alleged forex manipulation has sucked most of the media's attention and focus away from the Libor and ISDAfix scandals.  I just saw, however, this recent piece from Global Insurance Intelligence discussing the potential payouts on the ISDAfix scandals. The article suggests that the payouts for ISDAfix could dwarf the costs of Libor and forex but does not share any analysis as to how they got to that conclusion. I don't have a crystal ball telling me whether there will in fact be any payouts on ISDAfix and if so what they will be, but this is a welcome distraction of the steady drumbeat of news about forex traders at big banks being suspended or fired. 

ICAP to lose role of ISDAfix Benchmark Administrator

Bloomberg reports that ISDA is "seeking offers from companies wanting to become the benchmark administrator for ISDAfix, a measure used in the $426 trillion swaps market."  I can imagine what the job qualifications should probably say: applicant must not have any positions in the swaps market; must not have employees who are friendly with banks' swaps traders; must be immune to all types of material and spiritual temptations. NOTE: we don't know if there have been any past wrongdoings and we're not saying that there has been. But, just changing the administrator is insufficient to prevent potential future wrongdoing. ISDA needs to make sure the administrator is a party that has no trading interests that could be impacted by the ISDAfix.  

Media reporting UK Broker ICAP to lose role in ISDAfix swaps benchmark

A number of media outlets are reporting that UK Broker ICAP will lose role in the ISDAfix swaps benchmark.  Possible outcomes of the reported investigations into Libor and ISDAfix could include greater oversight of interbank dealers like ICAP. Expect more to come.

May a Bank "Tell-All" to Regulators Regarding FX Benchmark Rates?

This article discusses prior investigations by regulators and the incentives to the first mover to cooperate.
http://www.sfgate.com/business/bloomberg/article/Banks-Said-to-Snitch-on-FX-Competitors-in-Race-to-5080967.php