The Securities Litigation Expert Blog

IOSCO Report Seeks Comments on Libor Benchmarks

Posted by Jack Duval

Jan 14, 2013 3:05:42 AM

The International Organization of Securities Commissions has issued a report seeking comment regarding benchmarks.  (Press Release, Report)  The goal of the report is:

To address concerns regarding the potential inaccuracy or manipulation of Benchmarks and maintain confidence in the credibility of Benchmarks, the Task Force is seeking to articulate policy guidance and principles for Benchmark-related activities (including those related to effective self-regulation) and consider issues related to transition. To inform this work, the Task Force will:

  • identify Benchmark-related issues across securities and derivatives and other financial sectors and identify the relevant policy issues including:

  • the appropriate level of regulatory oversight of the process of Benchmarking;

  • the standards that should apply to methodologies for Benchmark calculation, and credible governance structures to address conflict of interests in the Benchmark setting process within the reporting financial institutions as well as in the oversight bodies; and

  • the appropriate level of transparency and openness in the Benchmarking process.

The Consultation Report also discusses potential provisions for replacement and issues Market Participants might confront when seeking to make a transition to a new or different Benchmark.

Obviously, what is on everyone's mind is how to insure benchmark integrity post-Libor.  My suggestion is to get away from the committee and let the market set the rate.

See our previous coverage of the IOSCO here and here.

Comments can be submitted on or before February 11th, 2013.

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Topics: benchmarks, LIBOR, litigation, SEC, Compliance, IOSCO, regulation.

First Libor-Based Swap Case Filed in UK

Posted by Jack Duval

Oct 30, 2012 3:05:02 AM

Reuters reports that Guardian Care Homes is suing Barclays over Libor-based interest rate swaps.  (Reuters)  Although it is a small claim of $59 million, it has big implications and will be watched carefully.

The article has one staggering fact:

Britain's financial regulator has estimated that about 44,000 interest rate swaps have been wrongly sold to UK companies since 2001.

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Topics: Swaps, LIBOR, litigation, Guardian Care Homes, investments, Compliance, Barclays

Five Alabama Homeowners Sue Banks over Libor

Posted by Jack Duval

Oct 19, 2012 2:37:39 AM

DSNews reports that five Alabama homeowners are acting as lead plaintiffs in a Libor class action.  They owned ARMs linked to the Libor and claim to have been damaged in the $1,000 range.  The plaintiffs attorneys estimate the class could grow to over 100,000.  (DSN)  Also see an FT article on the same topic.  (FT)  (You will need a subscription.)

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Topics: DSNews, Alabama, LIBOR, litigation, FT

Libor Liability Estimate Update: $6 billion

Posted by Jack Duval

Oct 12, 2012 4:20:54 AM

The latest liability estimate for the Libor scandal is in at $6 billion for municipal bonds, writes Darrell Preston of Bloomberg.  (Bloomberg)  The estimate comes from Swap Financial Group.  The size of the muni swap market is estimated to be about $500 billion, so the $6 billion estimate comes in at 1.2 percent.

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Topics: Bloomberg, Darrell Preston, Swaps, LIBOR, litigation, Swap Financial Group, municipal bonds

Can Libor be Fixed?

Posted by Jack Duval

Sep 28, 2012 10:08:22 AM

The indefatigable Floyd Norris, writing in The New York Times, outlines the problems with fixing Libor as it exists today.  The article can be found here.

While there can be no doubt that the world needs a no-risk reference rate, I doubt that Libor can be salvaged.

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Topics: LIBOR, The New York Times, Floyd Norris

Libor Litigation - Part Deux

Posted by Jack Duval

Sep 27, 2012 1:00:29 PM

Reuters reports that a second wave of Libor litigation could be heading our way depending on how the rate is changed.  You can get the article here.  If you don't feel like making the jump, here's what you need to know:

Major changes to the way Libor is set could trigger years of legal wrangling between derivatives counterparties to determine what effect those changes have on existing contracts.

The rate to which USD350trn over-the-counter swaps contracts are benchmarked is about to embark on the biggest overhaul of its 26-year history as Martin Wheatley, managing director of the UK's Financial Services Authority, presents his recommendations for the future of Libor on Friday.

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Topics: LIBOR, litigation, Reuters

LIBOR Scandal Becomes New Profit Center for White Collar Law Firms

Posted by Jack Duval

Sep 25, 2012 3:23:56 AM

Azam Ahmed of The New York Times has an great piece out in the DealBook Section about how white collar law firms are thriving, especially off of the Libor scandal.  You can find the article here.  The (literal) money quote:

The global investigation into the manipulation of a crucial benchmark interest rate known as the London interbank offered rate has emerged as the most profitable for the legal profession.

While many of the recent scandals have been relatively isolated, the scope of the rate-rigging scandal has been vast, encompassing 16 banks. More than 10 government authorities around the world are looking into whether the banks reported false rates, potentially affecting trillions of dollars of financial products like mortgages and student loans.

The investigation is still in its early days, but experts say it is likely to drag on for years. Authorities could arrest traders this year, and more cases against big banks are expected. Earlier this year, Barclays agreed to pay $450 million to settle accusations that it had reported false rates.

And for humor:
“This is looking like a full employment act for the corporate bar,” said Samuel W. Buell, a professor at Duke Law School. “It’s very hard to see how you draw a tight circle around this issue.”
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Topics: LIBOR, litigation, The New York Times, Azam Ahmed

LIBOR-Type Manipulation Possible in Many Global Indicies

Posted by Jack Duval

Sep 22, 2012 3:38:50 AM

Joshua Gallu of Bloomberg reports here that many of the worlds benchmarks could be subject to the same type of manipulation seen with LIBOR.  How?:

Fewer than half of the benchmark interest rates surveyed in the U.S., Europe and Asia were based on actual transactions, according to a confidential International Organization of Securities Commissions discussion paper obtained by Bloomberg News. Instead, the rates were calculated by methodologies that were unclear, not transparent and only rarely subject to specific regulatory standards or obligations, the group said.

I think most people would be shocked to discover that less than half the interest rate indexes were based on transactions.  We have previously commented on this here.

The press release by the industry group IOSCO can be found here.

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Topics: Bloomberg, Joshua Gallu, benchmarks, LIBOR, interest rates, IOSCO

LIBOR-Based Swaps Estimated to be $250 Trillion

Posted by Jack Duval

Sep 19, 2012 3:58:12 AM

The Guardian has an article which estimates LIBOR-based swaps to be $250 trillion - which is a lot of illions.  You can find the article here.  Writer Alix Bailin does a nice job describing the LIBOR setting process, which is remarkably like the Keynesian beauty contest.  Here you go:

The process for ascertaining Libor is really quite remarkable. It is not done by averaging the rates at which banks actually lend to one another for any given period of time. It is calculated by asking member banks (there are between eight and 20 for each currency) what rate they think they could borrow funds on the interbank market.

By the way, Bailin is a barrister at Matrix Chambers and used to trade swaps in the City.
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Topics: Matrix Chambers, Swaps, LIBOR, trillion, Guardian, Keynes, Alix Bailin

Reuters - New York Fed Knew about LIBOR Fixing in August 2007

Posted by Jack Duval

Sep 14, 2012 6:17:19 AM

Reuters is reporting here that it is likely the New York Fed knew about LIBOR rate fixing... back in August 2007.  It then investigated Barclays in the Spring of 2008 and shared their findings with the UK regulators.

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Topics: LIBOR, litigation, New York Fed, Barclays, Reuters

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