“The most important number in the world” is almost no more. The London Inter-bank Offered Rate, once the bedrock of the financial system underlying some $800 trillion in various contracts, will all but cease to be at the end of the year, and will actually cease to be by June 2023. Everyone is eager to be rid of it, even though its proposed replacement just might not actually be ready it in time, and all because pretty much every bank in the world got caught manipulating it nine years ago.

Which means its time for the semi-regular reminder that bankers and other market players do not only manipulate interest rates, which they do, all the time, and not only Libor, but can, will, and do manipulate everything they can, which is to say pretty much everything, all the time.

Emilio Jose Heredia Collado…. was arraigned Tuesday in San Francisco federal court on one count of conspiracy related to trading through a process managed by oil-price benchmark publisher S&P Global Platts. Mr. Heredia directed other traders to submit orders that would push up or down prices, to engineer a move that would improve the profitability of other transactions in physical fuel oil….

The case targets conduct first revealed by The Wall Street Journal in 2013, in an article that showed traders admitting they could manipulate prices on the Platts system…. Authorities in Europe have investigated whether trading firms such as Glencore, Vitol and Gunvor Group Ltd. manipulated prices through the Platts process…. The Commodity Futures Trading Commission, a civil regulator in the U.S., also probed the allegations more than a decade ago.

And Heredia—a former Glencore trader who’s expected to plead guilty to the charges—wasn’t shy about it, either. We’re not talking about a handful of basis points here.

In one example cited by prosecutors, Mr. Heredia in 2016 directed a co-conspirator to submit offers to Platts during the pricing window for a low-grade fuel known as “bunker” at the port of Los Angeles. The other trader subsequently lowered the price more than 40 times to push down the Platts benchmark, according to prosecutors…. The activity had the effect of moving down the price from an average of $245 a metric ton to a final price of $204.50 a metric ton….

Former Glencore Oil Trader Charged With Manipulation of Fuel Prices [WSJ]
Libor Transition Goes on Even With SOFR Term Rate Uncertain [Bloomberg]
Fed’s Quarles Says ‘Finally Time’ for Everyone to Ditch Libor [Bloomberg]

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By U. S. Treasury (U. S. Treasury hard copy for G8 Summit) [Public domain], via Wikimedia Commons

Fed Officials Would Like To Have Less To Do

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RBS Trader Whose Instant Messages Clearly Show Him (Allegedly) Engaging In Libor Manipulation Not Going Down Without A Fight

One thing that most people probably agree on is that having their instant messages, e-mails, and phone calls end up court would be cause for at least a little embarrassment. Everyone's thrown in an emoticon they aren't proud of, some of us have used company time to chat with significant others about undergarments, and the vast majority of workers have spent a not insignificant amount of the workday talking shit about their superiors. Of course, the humiliation gets ratcheted up a notch in the case of people who 'haha' (and in extreme circumstances "hahahah') their own jokes* which, just for example, involve habitual Libor manipulation. Tan Chi Min knows what we're talking about: “Nice Libor,” Tan said in an April 2, 2008, instant message with traders including Neil Danziger, who also was fired by RBS, and David Pieri. “Our six-month fixing moved the entire fixing, hahahah.” And while having such an exchange become public would be tremendously awkward for most, you know what's really 'hahaha' about this whole thing is that 1) Tan was the one who wanted people to read the above, which was submitted as part of a 231-page affidavit earlier this month and 2) He's trying to use it as evidence that he didn't deserve to be fired. The conversations among traders at RBS and firms including Deutsche Bank AG illustrate how the risk of abuse was embedded in the process for setting Libor, the benchmark for more than $300 trillion of securities worldwide......Tan, the bank’s former Singapore-based head of delta trading for Asia, [is] suing Britain’s third-biggest lender by assets for wrongful dismissal after being fired last year for allegedly trying to manipulate the London interbank offered rate, or Libor. Tan, who 'allegedly' tried to manipulate the London interbank offered rate, also included this conversations as part of his defense: “What’s the call on Libor,” Jezri Mohideen, then the bank’s head of yen products in Singapore, asked Danziger in an Aug. 21, 2007, chat. “Where would you like it, Libor that is,” Danziger asked, according to a transcript included in Tan’s filings. “Mixed feelings, but mostly I’d like it all lower so the world starts to make a little sense,” another trader responded. “The whole HF world will be kissing you instead of calling me if Libor move lower,” Tan said, referring to hedge funds. “OK, I will move the curve down 1 basis point, maybe more if I can,” Danziger replied. And this: In another conversation on March 27, 2008, Tan called for RBS to raise its Libor submission, saying an earlier lower figure the bank submitted may have cost his team 200,000 pounds. “We need to bump it way up high, highest among all if possible,” Tan said. Tan also asked for a high submission in an Aug. 20, 2007, instant message to Scott Nygaard, global head of RBS’s treasury markets in London. “We want high fix in 3s,” Tan said in the message. “Neil is the one setting the yen Libor in London now and for this week and next.” Also this: “It’s just amazing how Libor fixing can make you that much money or lose if opposite,” Tan said on an Aug. 19, 2007, conversation with traders at other banks, including Deutsche Bank’s Mark Wong. “It’s a cartel now in London.” And this philosophical one, for good measure: “This whole process would make banks pull out of Libor fixing,” Tan said in a May 16, 2011, chat with money markets trader Andrew Smoler. “Question is what is illegal? If making money if bank fix it to suits its own books are illegal... then no point fixing it right? Cuz there will be days when we will def make money fixing it.” The defense rests. RBS Instant Messages Show Libor Rates Skewed for Traders [Bloomberg] *Although actually people who do this probably don't even have the good sense to be ashamed of themselves.

(Getty Images)

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