European and Japanese banks face Swiss probe

03.02.2012 - 19:16

In an emailed statement on 3 Febraury, the Swiss competition watchdog has stated that Libor, and its Japanese equivalent Tibor, may have influenced collusion between derivative traders.

Libor is used to determine the price of many financial derivatives, including interest-rate futures, swaps and eurodollars. Due to London's importance as a global financial centre, Libor applies not only to pound sterling, but also to major currencies such as the US dollar, Swiss franc, Japanese yen and Canadian dollar.

The Swiss Competition Commission, COMCO, explained that it had initiated the investigation after receiving an application for its “leniency programme”, which indicated that traders from various banks might have influenced the rate.

Derivative traders working in various financial institutions may have manipulated Libor and Tibor submissions by “co-ordinating their behaviour, thereby influencing these reference rates in their favour”, the watchdog said. “Derivative traders might have colluded to manipulate the difference between the ask price and the bid price of derivatives based on these reference rates to the detriment of their clients.”

The banks in question must now respond to a letter with a request for information on the alleged collusion - they have a deadline at the beginning of March, which may take an extension if needed, and the probe will likely take more than a year to conclude .