Barclays Scandal – It’s the Stupidity That Shocks Me

So LIBOR and EURIBOR are these benchmark interest rates. They’re calculated by surveying a (large) panel of banks and taking the average of their *reported* borrowing rates.

We use them as crediting rates for holding accounts on various deals. The point here is that people ACTUALLY USE these rates because they’re viewed as a neutral estimate of risk-free (-ish) borrowing costs. Everyone gets that they’re sorta BS, but they’re probably not THAT bad, so we use them anyway.

Well…

58. Barclays’ Derivative Traders would request high or low submissions regularly in emails, for example on 7 February 2006, Trader C (a US dollar Derivatives Trader) requested a “High 1m and high 3m if poss please. Have v. large 3m coming up for the next 10 days or so”. Trader C also expressed his preference that Barclays would be “kicked out” of the average calculation. Trader C’s aim was therefore that Barclays’ submissions would be high enough to be excluded from the final average calculation, which could have affected the final benchmark rate.

…At least 14 Derivatives Traders at Barclays made these requests. This included senior Derivatives Traders.

That’s about all you need to know about the Barclays EURIBOR fixing scandal. Here are some graphs from the pdf:

I find this fascinating reading, though. Here’s more:

59. On Friday, 10 March 2006, two US dollar Derivatives Traders made email requests for a low three month US dollar LIBOR submission for the coming Monday:

i. Trader C stated “We have an unbelievably large set on Monday (the IMM). We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help”;

ii. Trader B explained “I really need a very very low 3m fixing on Monday – preferably we get kicked out. [DW- LIBOR and EURIBOR are calculated by clipping the highest and lowest rates submitted by the banks. I wish I understood why having the Barclays submission kicked out helps their trade…] We have about 80 yards [billion] fixing for the desk and each 0.1 [one basis point] lower in the fix is a huge help for us. So 4.90 or lower would be fantastic”. Trader B also indicated his preference that Barclays would be kicked out of the average calculation; and

iii. On Monday, 13 March 2006, the following email exchange took place:

Trader C: “The big day [has] arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go
for 3m?”

Submitter: “I am going 90 altho 91 is what I should be posting”.

Trader C: “[…] when I retire and write a book about this business your name will be written in golden letters […]”.

Submitter: “I would prefer this [to] not be in any book!”

60. The number of requests and the period of time over which they were made indicate that the Derivatives Traders made requests on a routine basis. Specific emails also indicate the requests were made regularly. For example, the following email exchange took place on 27 May 2005:

Submitter: “Hi All, Just as an FYI, I will be in noon’ish on Monday […]”.

Trader B: “Noonish? Whos going to put my low fixings in? hehehe”

Submitter: “[…] [X or Y] will be here if you have any requests for the fixings”.

And this!

67. On 6 August 2007, a Submitter even offered to submit a US dollar rate higher than that requested:

Trader F: “Pls set 3m libor as high as possible today”
Submitter: “Sure 5.37 okay?”
Trader F: “5.36 is fine”

Are these the stupidest people on earth? This is SNL-worthy idiocy.