"Swaps Probe Finds Banks Rigged Rate at Expense of Retirees"

[applegrove]

Swaps Probe Finds Banks Rigged Rate at Expense of Retirees

by Matthew Leising at Bloomberg News

http://www.bloomberg.com/news/2013-08-02/swaps-probe-finds-banks-manipulated-rate-at-expense-of-retirees.html

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.S. investigators uncovered evidence that banks reaped millions of dollars in trading profits at the expense of companies and pension funds by manipulating a benchmark for interest-rate derivatives.

Enlarge image Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees
Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees Ken James/Bloomberg
Companies, pension funds and investment firms from Calpers, the largest U.S. pension, to Newport Beach, California-based Pimco, manager of the world’s biggest mutual fund, use the kind of derivatives at the heart of the ISDAfix probe to hedge against losses or to speculate on interest-rate fluctuations.

Recorded telephone calls and e-mails reviewed by the Commodity Futures Trading Commission show that traders at Wall Street banks instructed ICAP Plc brokers in Jersey City, New Jersey, to buy or sell as many interest-rate swaps as necessary to move the benchmark rate, known as ISDAfix, to a predetermined level, according to a person with knowledge of the matter.

By rigging the measure, the banks stood to profit on separate derivatives trades they had with clients who were seeking to hedge against moves in interest rates. Banks sought to change the value of the swaps because the ISDAfix rate sets prices for the other derivatives, which are used by firms from the California Public Employees’ Retirement System to Pacific Investment Management Co., said the person, who asked not to be identified because the details aren’t public.

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