ICAP: Broker Rate Messages and Yen LIBOR Manipulation

ICAP Europe Limited agreed to pay a $65 million civil penalty to settle Commodity Futures Trading Commission charges of Yen LIBOR broker manipulation, including false borrowing-rate information sent to help a favored trader. The product looked like independent market insight. According to the CFTC, the rates inside it often reflected what the client needed for his derivatives positions. For someone who prepares rate messages or reviews broker communications, the connection between a client’s request and the next published suggestion is the heart of this case.

In its September 25, 2013 settlement order, the Commodity Futures Trading Commission found that the conduct ran from at least October 2006 through at least January 2011. ICAP Europe was a London-based interdealer broker. The Commission found that its brokers’ role in market manipulation was to influence the information reaching banks that submitted the benchmark rates. The favored client was a Tokyo-based senior Yen derivatives trader at UBS Securities Japan, who later moved to another bank. The order links this conduct to the Commission’s earlier UBS action, which also described the trader’s use of interdealer brokers to influence other banks.

The CFTC announcement also reported a separate £14 million penalty from the United Kingdom’s Financial Conduct Authority. In the American action, the charges covered false reporting and helping traders manipulate the rate, as well as manipulation and attempted manipulation.

Why a Broker’s Rate Message Mattered

Interdealer brokers matched banks buying and selling cash and derivatives products, earning commissions and supplying information about prices. The CFTC order explains why that second service mattered: a broker speaking to several banks could see borrowing conditions that an individual bank could not. Market color carried an implicit promise that the broker was giving an unbiased assessment based on observable market information.

During the period covered by the order, Yen LIBOR was supposed to reflect what panel banks would pay to borrow unsecured funds in the London interbank market. Banks submitted their rates before the daily deadline, and an averaging process excluded the highest and lowest groups of submissions. The resulting fixing affected swaps, loans, futures and options. A trader whose derivatives were tied to that rate had a financial reason to want the fixing higher or lower.

The financial crisis made the broker’s information particularly valuable. The order found that limited interbank lending during the crisis left some panel banks treating broker information as possibly the only meaningful evidence of borrowing conditions. That dependence gave a rate suggestion influence well beyond the desk that sent it. An employee who knew where the suggestion came from could explain something the published benchmark would never show.

Suggested LIBORs, Delivered Before the Fix

According to the order, ICAP’s Yen cash broker sent a daily email called a Run Thru at approximately 7:00 a.m. London time, ahead of the 11:00 a.m. submission deadline. It contained previous-day cash rates, rates observed around the London opening and late afternoon in Tokyo, and a column headed Suggested LIBORs. The presentation put the broker’s predictions alongside observations of the cash market.

The CFTC found that a derivatives broker repeatedly asked the cash broker to skew those suggestions to the senior trader’s preferred levels. The senior trader made more than 400 oral and written requests for assistance, often covering several maturities at once. His aim was to increase profits or reduce losses on positions valued against the fixing. The apparently independent rate message was a way to get that preference in front of the banks.

The order describes extensive distribution. More than 100 cash and derivatives traders received the Run Thrus, including submitters from at least eleven of the sixteen panel banks at different times. The order found that one bank’s one-month, three-month and six-month submissions matched the broker’s suggestions on 90% of submission dates in 2007. Several banks considered the messages when deciding what to submit, and some simply used the suggested rates. Copy, paste, submit.

The CFTC also found that banks trying to submit truthful rates could pass on misleading information because they relied on the broker’s purportedly unbiased assessment. We see the particular abuse here: the broker could turn another bank’s search for reliable information into a means of carrying a client’s preferred rate. The recipient did not have to see the request that had shaped the message.

A June 2024 draft working paper from a World Federation of Exchanges research project, An Analysis of Market Manipulation Definitions Around the World, describes benchmark rigging as feeding false or misleading submissions into a benchmark calculation. It also identifies coordination among submitters as a way to increase their influence. ICAP’s case adds a useful view of the business behind those inputs: a broker could shape the information several submitters consulted before they sent their rates.

Direct Requests Reached the Banks Too

The CFTC found a second channel alongside the group emails: ICAP brokers contacted panel-bank traders and submitters directly to seek rates favorable to the client. The derivatives broker enlisted colleagues, and the cash broker used his own relationships with submitters. The published Run Thru therefore showed only part of the effort to influence the fixing.

The service also survived staff absences. According to the order, when the Yen cash broker was away, the derivatives desk used a Euro cash broker who did not broker Yen transactions. The substitute generally followed the desk’s instructions and sometimes sent revised Run Thrus after the original message had gone out. The order describes one such revision sent from the absent broker’s email account.

Nor did the service end when the senior trader left UBS. The order found that an ICAP broker offered the same assistance to a UBS trader managing positions left behind and later resumed helping the original client at his new bank. In an October 21, 2009 message reproduced in the order, the broker sold the cash broker’s influence this way:

The sales pitch put moving accounts in the client’s favor beside accurately predicting the rate. We read that as a revealing description of what the desk was selling: influence packaged with insight.

The CFTC Traced the Rate Service to Client Revenue

The senior trader’s importance to the desk explains the brokers’ willingness to accommodate him. The order found that he accounted for as much as 20% of the Yen derivatives desk’s business. UBS paid a fixed monthly brokerage fee, while counterparties to the trader’s transactions generated additional commissions. Several brokers’ bonuses depended on the commissions the desk earned.

The order describes a cash broker who called himself “Lord LIBOR” and demanded compensation for his influence. His rewards escalated from meals and champagne to commission-generating trades and regular bonus payments. When he considered his compensation inadequate, an email subject line announced “LIBORS NO MORE”.

According to the order, in July 2007 ICAP renegotiated the UBS agreement to add $9,000 to the monthly fixed fee. The order says the cash broker received that amount as a quarterly bonus and the derivatives desk retained the rest as additional compensation. The payments to the cash broker ultimately totaled $72,000, beside a $65 million civil penalty for ICAP Europe. We see the absurdity: the desk paid extra for supposedly independent market information to say what its client wanted.

The pressure ran in both directions. The order describes the senior trader threatening to move business away when rates did not move as requested. In one episode, that threat prompted urgent messages from the derivatives desk, followed by a revised Run Thru at the client’s desired level. For a surveillance employee, the fee agreement, bonus allocation and revised email tell a connected story.

The CFTC Found the Desk Head Took Part

The CFTC found that ICAP lacked procedures to approve market information before distribution or verify the basis for it. The Yen cash broker operated with little supervision, and ICAP relied on desk heads to report suspicious conduct. The order found that the Yen derivatives desk head was himself involved in the manipulation. The person expected to raise the concern was helping arrange the service.

The order also found that the Yen derivatives desk went without compliance reviews or audits for more than four years because it was not considered a potential compliance risk. Audits of the cash desk sampled communications but missed the misconduct. Reviewing the two desks together would likely have exposed the client’s importance, the rate requests and the compensation arrangement, the CFTC concluded.

The brokers’ responses to possible scrutiny were revealing too. The order describes a derivatives broker moving communications to personal phones and text messages, and participants using code words for requests to move LIBOR. Those findings make communications and supervision records part of the manipulation story. A clean-looking rate email could sit at the end of a very different conversation.

The settlement required ICAP Europe and ICAP plc to document the basis for benchmark publications and obtain supervisory approval before distribution. Keeping the publications, their authors and supporting data would make it possible to trace a suggested rate back to its source.

What Evidence Is Required to Prove Fraud?

We help connect the messages, trading positions and payments that explain why a rate changed. In ICAP’s order, dated Run Thrus and revisions showed what recipients saw, while trader requests and communications with submitters explained why the message took that form. Commission and bonus arrangements explained the broker’s incentive to help.

The same working paper describes both whistleblower reports and specialist review of surveillance alerts as ways manipulation can come to light. It also stresses the difficulty of monitoring opaque over-the-counter markets and multiple communication channels. Your knowledge of who requested a change, who approved it and what the desk stood to gain can connect records that otherwise look unrelated.

The CFTC whistleblower program can reward qualifying information that helps enforcement. Its whistleblower award range is 10% to 30% of collected monetary sanctions, shared among qualifying whistleblowers in an action.

You Know Why the Rate Changed

If you know whose request changed a broker’s rate message or how the desk was paid for its influence, talk with our whistleblower experts about what you saw. We build your strongest CFTC whistleblower case around the messages, the positions and the money, and bring in CFTC whistleblower lawyers who understand benchmark manipulation. We stay beside you as that inside knowledge becomes a case the government can investigate.