Derivatives regulators in both the U.S. and the UK announced further sanctions against a brokerage firm for its role in LIBOR manipulation today.
The U.S. Commodity Futures Trading Commission (CFTC) issued an order against inter dealer broker, RP Martin Holdings Ltd., and its subsidiary, Martin Brokers (UK) Ltd., filing and settling charges of manipulation, attempted manipulation, false reporting, and aiding and abetting derivatives traders’ manipulation of Yen LIBOR. Under the deal, the firm must pay a US$1.2 million civil monetary penalty, and it also agrees to take certain steps to ensure the integrity and reliability of the benchmark interest rate-related market information it disseminates.
In a related action, the UK’s Financial Conduct Authority (FCA) also issued a final notice regarding its enforcement action against Martin Brokers (UK), imposing a penalty of £630,000 (US$1.06 million.)
The CFTC order finds that, “from at least September 2008 through at least August 2009, RP Martin brokers on its Yen desk at times knowingly disseminated false and misleading information concerning Yen borrowing rates to market participants in attempts to manipulate the official fixing of the daily Yen LIBOR.” It says they did this primarily to aid a senior derivatives trader at UBS Securities Japan Co., Ltd. (UBS) and later at another bank, “who was attempting to manipulate Yen LIBOR to benefit his derivatives trading positions tied to this benchmark.”
In exchange for their assistance, the RP Martin brokers accepted payments totaling more than US$400,000, “through the form of wash trades that were designed solely to generate commissions for RP Martin”, the CFTC says.
With this latest case, the CFTC has now brought a total of six actions, and imposed penalties of US$1.8 billion for manipulative conduct in connection with LIBOR. It is also the sixth firm to be fined by the FCA for LIBOR-related failures, and the second interdealer broker.
“Interdealer brokers are expected to act as trusted intermediaries and are key conduits of market information. Martins abused this position of trust by providing false information to panel banks, with no regard for the integrity of the market. This is unacceptable behaviour from any market participant,” said Tracey McDermott, director of enforcement and financial crime at the FCA.
“The culture at Martins was that profit came first. Compliance was seen as a hindrance and the firm lacked the means to detect the “wash trades”,” she added. “In this environment, broker misconduct was almost inevitable.”
“Similar cultural failings at other firms have caused havoc in the financial services industry. As we have said before, firms need to take their responsibilities to uphold market integrity seriously. If firms fail to heed these warnings then we will take action against them,” McDermott said.
“Today’s action is part of our on-going efforts to ensure that the LIBOR rate is free of fraud and manipulation. Further, this action reflects the commission’s unwavering commitment to hold those who seek to undermine the integrity of the U.S. financial markets responsible for their actions,” said Gretchen Lowe, acting director of the CFTC’s division of enforcement.