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Swiss investigate banks over borrowing rates for derivatives trades

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The Swiss Competition Commission (COMCO) has opened an investigation into twelve major banks  over suspicions that they may have colluded to depress interbank interest rates used in multi-billion derivatives trades.

Beside the two major Swiss banks UBS and Credit Suisse, ten foreign banks (Bank of Tokyo-Mitsubishi UFJ, Citigroup Inc., Deutsche Bank Aktiengesellschaft, HSBC Holdings plc, JP Morgan Chase & Co, Mizuho Financial Group Inc., Rabobank Groep N.V., Royal Bank of Scotland Group plc, Société Générale S.A., Sumitomo Mitsui Banking Corporation) and other financial intermediaries are subject to this investigation led by COMCO’s  Secretariat. One of the key aims of the investigation is to assess the effects of the alleged practises on Swiss clients and companies.

COMCO states it has: "received information regarding potential unlawful agreements among banks. Specifically, collusion between derivative traders might have influenced the reference rates LIBOR und TIBOR. Furthermore, market conditions regarding derivative products based on these reference rates might have been manipulated too. Hence, COMCO has opened an investigation against UBS and Credit Suisse, as well as against more than ten foreign financial institutes and other companies."

The Secretariat of COMCO confirmed it has received an application for its leniency program, which indicated that derivative traders of various banks might have influenced the reference rates LIBOR and TIBOR fixed with respect to certain currencies. The London Interbank Offered Rate (LIBOR) and the Tokyo Interbank Offered Rate (TIBOR) are reference rates which are aimed at reflecting the interest rate level in the interbank deposit market. The British Bankers’ Association (for LIBOR) and the Japanese Bankers’ Association (for TIBOR) calculate these reference rates on a daily basis, for a range of currencies, based on submissions by respective panel banks.

COMCO says derivative traders working for a number of financial institutions might have manipulated these submissions by coordinating their behaviour, thereby influencing these reference rates in their favour. Moreover, derivative traders might have colluded to manipulate the difference between the ask price and the bid price (spread) of derivatives based on these reference rates to the detriment of their clients.

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