WASHINGTON (Legal Newsline) - The U.S. Commodity Futures Trading Commission issued an order Wednesday fining Barclays Bank $200 million for alleged attempted interest rate manipulation and false reporting to benefit its derivatives trading positions.
This order resolves complaints against Barclays PLC, Barclays Bank PLC and Barclays Capital Inc. (collectively Barclays). The CFTC determined that Barclays attempted to manipulate two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, beginning as early as 2005.
This was allegedly done to benefit the bank's derivatives trading positions by either increasing its profits or minimizing its losses.
According to the CFTC communique, LIBOR - the London Interbank Offered Rate - is among the most important benchmark interest rates in the world's economy, and is a key rate in the United States. EURIBOR, which is calculated in a similar fashion by the European Banking Federation, is another globally important rate that measures the cost of borrowing in the Economic and Monetary Union of the European Union.
LIBOR impacts enormous volumes of swaps and futures contracts, commercial and personal consumer loans, home mortgages and other transactions, the CFTC says.
The U.S. Dollar LIBOR is the basis for the settlement of the three-month Eurodollar futures contract traded on the Chicago Mercantile Exchange, which had a traded volume in 2011 with a notional value exceeding $564 trillion.
Euribor is also used internationally in derivatives contracts. In 2011, over-the-counter interest rate derivatives referenced to Euro rates had a notional value in excess of$220 trillion, according to the Bank for International Settlements. LIBOR and Euribor are relied upon by countless large and small businesses and individuals who trust that the rates are derived from candid and reliable submissions made by each of the banks on the panels, the CFTC says.
Throughout the global financial crisis in late August 2007 through early 2009, Barclays' senior management ordered artificially low LIBOR submissions to protect Barclays' reputation from negative market and media perceptions concerning Barclays' financial condition, the CFTC said.
"The American public and our markets rely upon the integrity of benchmark interest rates like LIBOR and Euribor because they form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of the global economy," said David Meister, the CFTC's Director of Enforcement.
"Banks that contribute information to those benchmarks must do so honestly. When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank's reputation, the integrity of benchmark interest rates is undermined.
"The CFTC launched this investigation to protect the markets and the public from such illegal conduct, and today's action demonstrates that we will bring the full force of our authority to bear as we carry out that mission."
The CFTC said one Barclays trader said in an email, "We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible."