Gold and silver fixing

This chapter begins with short histories of the London gold and silver markets, including the development of the gold and silver fixes. After the breaking of the LIBOR and FX scandals, suspicions soon emerged that the gold and silver markets were also being rigged. Initial investigations by the CFTC found no evidence of this, but orders would later be issued against a number of figures, notably trader David Liew, and steps would be taken to protect the system from manipulation.

The evolution of LIBOR

This chapter provides a brief history of LIBOR, the London Interbank Offered Rate, tracing both market developments and the macro-economic and regulatory environment in which it was created. Beginning as an informal measure used in the London Eurodollar market of the 1960s, LIBOR made the transition to a formal benchmark in the mid-1980s, eventually becoming the most widely used benchmark in the world by the late-1990s.

A decade of deregulation?

This chapter traces the history of financial regulation in the UK. It challenges the widely held belief that the period from the 1980s witnessed a systematic process of deregulation. In fact, from the 1970s there was a period of increasing regulation up until the mid-2000s, when the government began to encourage a ‘light touch’ approach. The combination of all these factors meant that banks were ill-prepared to meet the financial crisis. In its aftermath, as the banks embarked on the slow path to recovery, making profits was essential. The traders seized any opportunity they could, and it may well be the case that banks were simply relieved that some areas of their business were profitable.

Reforming benchmarks

This chapter describes the effects of the Financial Stability Board review of interest rate benchmarks. The board’s report recommended a number of measures to help improve security, notably by underpinning existing IBORS with transactions data and by developing alternative, nearly risk-free rates. New benchmarks would be developed with reference to the ISOCO Principles published in July 2013. The chapter explains these principles and how they were put into practice.

A rapidly changing foreign exchange market

This chapter shows how much the Forex market has changed and developed over the years. It also reveals what goes on behind the scenes when buying foreign exchange at a bureau de change, paying bills to a company in another country or booking a hotel using a credit card on the internet or by telephone. The days of noisy trading floors where dealers shouted at each other have long gone, to be replaced by computers and people tapping at keyboards or talking quietly to each other. When did the Forex market start to change and why does it matter?

Who knew what when?

In this chapter the focus is on the comments and claims made about LIBOR prior to the beginning of the formal investigations by the FSA and the CFTC. As usual, after any scandal is revealed, the question immediately arose as to why the regulators had not discovered the wrongdoing earlier and taken action against those involved. This chapter sets out who knew what, considering the reasons both for the failure to detect what was going on with LIBOR and the alleged failure to take prompt action.

Holding senior bankers to account

This concluding chapter addresses the question of why so few senior bankers have borne the consequences of market manipulation carried out by their subordinates. It argues that the huge fines imposed on banks have failed both in terms of justice and in terms of bringing about changes in culture and behaviour. Tracing the changes in the senior-management regime from the 1990s to the present, it weighs up the possible means of ensuring that senior figures are held responsible in the future.

Yet more banks are involved

This chapter sets out the ways in which other banks manipulated LIBOR, using the same techniques and for the same reasons. As the Final Notice to UBS makes clear, the methods used were due in large part to one trader moving from one bank to another, so that networks of contacts were established.

Manipulating the foreign exchange market

This chapter uses evidence collected by regulators to demonstrate how dealers’ practice of acting as principals rather than agents put their clients at risk. Containing extensive excerpts from traders’ communications, it demonstrates how they managed their manipulations and in what environment it all took place.

Manipulation abounds

This chapter charts the loss of faith in LIBOR that began to set in during the Financial Crisis, particularly following two articles in the Wall Street Journal. Investigation by the regulators subsequently revealed that a number of early warnings had been overlooked, and that certain banks had been distorting rates since at least 2005. Drawing on FSA reports, the chapter demonstrates the day-to-day manipulation practiced by traders at Barclays, the Royal Bank of Scotland and UBS.