Regulation  

Broker fine reduced 80% as regulatory action piles up

An interdealer broker has been hit with a £630,000 fine over its involvement in interest rate manipulation after an original penalty of £3.6m was dramatically reduced in part because the firm was deemed unable to meet the cost of a raft of enforcement action.

The fine from the UK watchdog for Martin Brokers (UK) Ltd over misconduct relating to the London interbank offered rate came as a result of a “significant cross-border investigation” and alongside a settlement of of $1.2m (£720,000) ordered by the US Commodity Futures Trading Commission.

Martins agreed to settle at an early stage of the FCA investigation and therefore qualified for a 30 per cent discount under the regulator’s settlement discount scheme.

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A total reduction of 81.75 per cent in the value of the fine also reflected the fact the firm had shown it could not meet the original penalty amount in addition to the other regulatory actions that it faces in relation to Libor, the FCA said.

Between January 2007 and December 2010, Martins “colluded with a trader” at UBS to manipulate the Japanese Yen Libor rates for the trader’s own benefit.

The misconduct involved Martins deliberately disseminating incorrect or misleading Libor submission levels by communicating “skewed suggestions” to some panel banks as to where they believed the published JPY Libor rate “would set for a particular day”.

Martins also created “false” orders, with the “aim of influencing panel banks’ views of the cash market so that they would make JPY Libor submissions at levels that benefitted the UBS trader”.

The regulator found it also requested certain panel banks to make “specific JPY Libor submissions”.

The UBS trader made “corrupt brokerage payments to reward Martins for their efforts to manipulate” the Libor submissions of panel banks through the use of fake trades known as ‘wash trades’, the regulator said.

Martins’ misconduct occurred over a number of years and involved several brokers. Martins’ “inadequate” systems, controls, supervision and monitoring meant that the brokers’ misconduct continued for several years.

For similar reasons, the ‘wash trades’ which were exceptionally large, “were not identified as suspicious”, the FCA said.

The FCA said two brokers, including one manager, were “central to the collusion”, although at least three other individuals, including two managers, spanning two desks played a role. There was no effective oversight of the brokers involved, who were able to freely engage in misconduct.

Tracey McDermott, director of enforcement and financial crime, said: “Interdealer brokers are expected to act as trusted intermediaries and are key conduits of market information.

“Martins abused this position of trust by providing false information to panel banks, with no regard for the integrity of the market. This is unacceptable behaviour from any market participant.”