[ by Howard Haykin ]

UBS Trader A, openly boasting about his intention to keep the Libor interest rate artificially low, wrote in an IM exchange:  "3m libor is too high cause I have kept it artificially high."  This single employee appears to have made hundreds of requests to counterparts at other banks to help manipulate the rate;  all the while, at least 45 UBS associates knew of, or were involved in, the rigging of the rate. 

It's all described in documents released on Wednesday by UK regulator, the Financial Services Authority, or the FSA.  What's particularly maddening is the scale of manipulation at UBS, and the apparent macho trading culture on the UBS trading floor.  [C-I Note:  Aside from the fact that Trader A was engaging in a criminal offense, it should come as no surprise to anyone generally familiar with trading desks to hear about a "macho culture" - that seems to exist most of the time, and is promoted aggressively by teams of traders - many of whom are relatively young and unpolished.]   Trader A is further quoted as saying:  "if you keep 6s [i.e. the six month JPY LIBOR rate] unchanged today ... I will ****ing do one humongous deal with you ... Like a 50,000 buck deal."

The Three Muscateers.   Traders and brokers implicated in the scandal referred to each other as "the three muscateers [sic]" and "captain caos [sic]." Three people, including one former UBS employee, have been arrested in the U.K. over the scandal, and bailed without any charge from police, although it is not known whether any of them are the individuals referred to in the documents.

As C-I reports in today's What Went Wrong story, "UBS Agrees to Libor Manipulation Charges ..." UBS has agreed to pay a penalties totaling 1.4 billion Swiss francs (equivalent to $1.5 billion) to settle accusations that it tried to rig benchmark interest rates.  That figure represents: $1.2bn to U.S. authorities, $260mn to the FSA, and $65mn to Swiss authorities. 

And, as noted in a press release issued Wednesday, the bank agreed with the U.S. Department of Justice "to enter a plea to one count of wire fraud relating to the manipulation of certain benchmark interest rates, including Yen LIBOR."   UBS said it will post a 4th quarter net loss, primarily as a result of provisions for litigation and regulatory matters. 

A Code of Heroism.   For one other UBS trader, the act of trying to manipulate rates was somehow heroic.  "Be a hero today," this trader asked in 2009, in all caps. Another wrote in September 2008, "I need you to keep it as low as possible," promising to pay "whatever you want. I'm a man of my word."

Inter-Dealer Brokers, As Accomplices.   While manipulation needs only one leader, it  requires several participants to enter and execute the illicit trades that are needed to drive a benchmark rate up or down.  Accordingly, it's likely that attention will be focused on six inter-dealer brokers that put through more than 1,000 of the illicit trades.  The brokers were paid by UBS and allegedly asked to pass on requests to traders at other banks to place fake bids and manipulate rates on their trading screens. 

[C-I: much like a telephone chain used by organizations to contact large numbers of individuals as fast and efficiently as possible - e.g., during times of emergency].

The FSA claim that UBS traders, "routinely made requests to the individuals at UBS responsible for determining its LIBOR and EURIBOR submissions to adjust their submissions to benefit the traders' trading positions."

• "the misconduct was extensive and widespread."
• "at least 2,000 requests for inappropriate submissions were documented.
• there also were an indeterminate number of oral requests made - which, by their nature, were not documented.
• "manipulation also was discussed in internal open chat forums and group emails."
• manipulation was "widely known."

For further details, go to:   [ CNBC, 12/19/12 ].