Barclays was the first bank to be named as the culprit in the recent LIBOR manipulation. However, it was expected that as the investigation would delve deeper and more names would come up. Recent investigations revealed executives at three banks who not only manipulated the benchmark rate but some of them are still working on the trading desks till now. Barclays has been accused by the authorities of usurping $453 million by engaging in manipulative practices.
The Royal Bank of Scotland Group and Switzerland’s UBS are also being named as the guilty parties who colluded with Barclays to dope the market. The process was carried out by traders who used the system to take control of the different LIBOR rates which were quoted for key currencies like the euro, yen and US dollar. The traders not only joined to manipulate the market, many of them changed jobs between these banks to gain deeper access. This interconnectedness allowed them to use the market and its tools to their own advantage.
Reuters named one of the involved trader as Jay V Merchant who operated the US dollar swap trading desk at Barclays in New York and was working at the bank from March 2006 to October 2009. The alleged banker is currently working at UBS, a clear indication of the deep-rooted corrupt practices and failure of the system.
The more appropriate solution would be to uproot these people whenever possible and to make an example of them so that future traders avoid any such manipulations and violations of the rules. It is already difficult to convict these people based on the evidences and paper trail left by them. So in order to give the financial system any sort of balance and justice, they should be tried and punished to the greatest degree of the law.
As the investigation unfolds, the real scale and timeline is becoming clear over time. The first signs of any rate rigging can be traced back to early 2005 when Barclays was seen reaching out to other banks so that it could make gains on swaps and derivatives markets bets. Slowly, this spilled into the euro rates market and lastly reached the yen and completed the triad of the most traded currencies in the world. As investigations widened, the real under belly of the finance market is coming out in the open. It is still hoped that more names will come out and there would be a long and prolonged series of civil suits to make the banks pay.
What needs to be looked into at this point of time is that not only should appropriate punishment be handed out but also that regulators and financial system should be restarted so that loopholes and rules around which the old participants were able to circumvent could be closed down. There is also a need to be more proactive in future so that manipulations can be minimised if not avoided all together.