Citi traders’ 2008 manipulations revealed

NEW YORK, NY - DECEMBER 05: A 'Citi' sign is displayed outside Citigroup Center near Citibank headquarters in Manhattan on December 5, 2012 in New York City. Citigroup Inc. today announced it was laying off 11,000 workers, about 4 percent of its workforce, in a move to slash costs. (Photo by Mario Tama/Getty Images)©Getty

As Citigroup became the latest big bank to pay a fine over the attempted manipulation of Libor, the US regulator’s investigation revealed embarrassing evidence about the behaviour of its traders during the financial crisis.

Settlements totalling $ 425m with the Commodity Futures Trading Commission, the main US derivatives regulator, brought to an end allegations the bank had manipulated and falsely reported critical market benchmarks.

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Those charges, which stretched from 2007 to 2012, included allegations that employees — many now departed — had attempted to manipulate Libor and Isdafix.

On instant messages published by the CFTC, traders said it was “surprising[ly] easy to push” the Isdafix dollar benchmark close to the daily 11am fixing time and boasted to each other in 2008 how far they had “had moved the screen”.

Although seemingly immaterial, they are among the world’s most important market gauges, used to set prices daily on millions of dollars worth of contracts. The CFTC’s lengthy pursuit of abuses of benchmarks used in over-the-counter markets has now levied more than $ 5bn in fines on banks around the world.

The moves had become so striking some of the customers had also noticed that Isdafix’s value changed dramatically at the 11am fixing. “[E]ach person tells me that there is no manipulation by the traders; however, the coincidence of us losing on every one but one fixing … is starting to get old,” one customer said, the CFTC found. A Financial Times report into potential Isdafix manipulation in 2010 was greeted with “GAME OVER” and “oh jesus do I want to read this?” by Citi traders.

Citi’s settlement relating to yen and dollar Libor, and Euroyen Tibor, all rates for lending between banks, was $ 175m; it also agreed a $ 250m settlement for Isdafix, used by traders to set the prices for interest rate swaps.

The US bank did not admit or deny any wrongdoing as it became the first US bank to resolve claims with the CFTC over Libor and IsdaFix. “We continue to fully co-operate with pending investigations conducted by other agencies related to benchmark rate submissions,” it said in a statement.

Even so, the regulator brought the matter to a close with its own choice revelations. Citi’s former trader Tom Hayes has become the reluctant face of the Libor scandal. He is currently serving 11 years in prison in the UK, arguing that his bosses were well aware of his actions.

On Wednesday the CFTC reinforced findings from its Japanese counterpart in 2011 that Hayes had been working alone and deceiving his bosses. In a series of revelations — caught via electronic messages that have ensnared others — the regulator argued Hayes’s bosses talked openly about his reputation for controlling the market before he had even started.

Instead, the bank was greatly influenced by its desire to generate profits of between $ 50m to $ 150m from his interest rates trading, the CFTC said.

Once in place, a senior manager at Citi in Tokyo, where Mr Hayes worked, also pressured submitters for euroyen Tibor, to benefit “the senior yen trader’s” derivatives trading positions, according to the CFTC. The trader was Hayes.

In a selection of emails one senior yen manager told a colleague: “We want it to be very sticky for four weeks [ . . .] our fear is like when you move it down, right, then you get another round of people who just pile on and they all start moving shit down as well.”

The CFTC said the senior manager was well aware that Citi’s position in the market could influence others.

Another email read: “We’re the highest foreign bank. So, that’s the point, right? The point is the foreign banks will all move in concert with each other and we’re the highest one.” Citi’s submitters “on a few occasions,” took the senior yen manager’s requests into account, the CFTC found. Hayes was dismissed by Citi for manipulating Libor rates later that year.

It also found that Citi was concerned about their submissions for Libor even at the height of the financial crisis, when Citi was receiving funding from the US government. As the availability of short term unsecured money dried up, submitters “realised the bank’s submissions could draw negative media attention and raise questions about the stability of the bank.”

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