The LIBOR rate fixing scandal that rocked financial markets earlier this year and cost Barclays Chief Executive Bob Diamond his job now seems to be appraoching other LIBOR market participants as well.
European banks UBS (NYSE: UBS) and Royal Bank of Scotland (NYSE: RBS) have suspended traders in Singapore as regulators investigating Libor-rigging turn their attention to the rates used to set prices on foreign exchange derivatives.
Royal Bank of Scotland, based in Edinburgh, has put Ken Choy, a director in its emerging markets foreign exchange trading unit, on leave, a person briefed on the matter said on Oct. 26.
UBS, Switzerland’s largest bank, has put foreign exchange traders on leave as part of an internal probe into the manipulation of non-deliverable forwards, a derivative traders use to speculate on the movement of currencies that are subject to domestic foreign exchange restrictions, according to a person with direct knowledge of the operation.
The scope of the LIBOR investigation continues to widen across the globe. The London Interbank Offered Rate is an important market statistic used in setting interest rates on a variety of loans – the banks that participate in setting LIBOR have allegedly colluded to set the rate on their own beneficial terms, rather than based on real market dynamics. LIBOR is just one of a variety of interbank offered rates listed around the world, leaving regulators the need to investigate other rates as well, such as in Singapore.
The Monetary Authority of Singapore last month announced it was extending its probe into rate-rigging to include NDFs. About $1.02 trillion of the contracts are traded in a year, according to 2003 figures, the most recent available, compiled by the Emerging Markets Traders Association.
Contracts that reference the Malaysian ringgit and the Indonesian rupiah against the dollar are among NDFs that are traded in Singapore. The spot rates for both currencies are fixed by the Association of Banks in Singapore based on data submitted by banks. If traders can move the spot rates, they could boost their profit, said a person familiar with the process who asked not to be identified.
The Russian ruble spot rate is set by CME Group Inc., which operates the Chicago Mercantile Exchange. Each day, the company surveys at least 15 lenders at a randomly selected time between noon and 12.30 p.m. in Moscow and asks them for both a bid and offer price on a hypothetical $100,000 ruble-to-dollar transaction.
Barclays (NYSE: BCS) was fined a record $467 million in June when it became the first bank to settle with regulators over the rigging of interest rates. Derivatives traders at the bank systematically sought to influence where Libor was set each day to suit their trading positions and boost profits, according to the U.K.’s Financial Services Authority. It appears this scandal may remain far from over.