Broker opinions vital to Libor setting, court hears

As the financial crisis worsened, broker opinions – 'run-throughs' – became more and more important to Libor rate-setters, a London court hears

Citi: Libor fix anomalies

The daily 'run-through' emails distributed by interdealer brokers – which may have included deliberately skewed opinions – had significant influence on some banks' Libor contributions, a London court heard today (June 23).

The jury in the trial of Tom Hayes, a former rate trader with UBS and Citi now facing eight charges of conspiracy to defraud, was shown examples of daily Libor contributions from Citi's primary yen Libor submitter, Burak Celtik.

Andrew Thursfield, European desk head for Citi's treasury department and Celtik's superior, told the court that brokers' run-throughs were "a very useful source of information [because] they spoke to many different bankers". After mid-2007, the interbank markets became "dislocated" and the number of trades dwindled, especially at longer tenors, Thursfield pointed out. That increased the reliance of Libor submitters on their own judgement and on sources of information other than their own observations of interbank trades carried out by their own bank, such as broker run-throughs.


Thursfield said that he had "since become aware" that Celtik's yen Libor submissions were "fairly frequently in line with the [broker] run-through". Earlier in the trial the court heard that Hayes bribed the broker in question to change his run-throughs in order to influence other banks' Libor submissions in Hayes's favour.

In one case, on November 20, 2008, the broker sent a run-through including a six-month figure higher than the nine-month, which Thursfield said "looks like an error". However, Celtik's Libor submissions matched the run-through rates exactly for the entire week, including the erroneous figure which was some 11 basis points higher than the eventual six-month Libor fix for that day. This demonstrated the degree of influence that broker run-throughs had over Libor-setters, the prosecution argued.

However, Thursfield told the court that he had not tried to use this channel of influence himself to affect Libor fixings. The prosecution showed the court several emails from his US and Canada counterpart Scott Bere, sent in 2007. In September, Bere told him it "may be prudent to try to hold the line (or even reduce) on our [three-month dollar] sets" – in court, Thursfield commented: "The only thing I can make of this is that they should continue to be independently set."

But Thursfield had replied to Bere, saying he would "continue to pressure the brokers to talk it down and generally press lower than all others", the court heard. Thursfield told the court that this was a reference to the fact that broker screens were "not reflecting the full range of the markets" and he would ask the bank's Libor submitters to press the brokers to change this. "I did not see [Bere's] email as a request for lower Libor," he told the court.

And two days later, on September 12, 2007, Thursfield told Bere that "we are constantly on the offensive to talk down broker indications and will continue to set lower ourselves". He told the court that his "wording was poorly chosen" and repeated that this did not refer to Citi pressuring brokers to reduce their run-throughs, but simply to "reflect the whole market on their screens".

The next day Bere again told Thursfield that, "assuming you don't need a high setting for your book", he would "appreciate if you could be aggressive with our setting – i.e. 60 or lower". Thursfield told the court that he did not know what the reference to his book meant, but that it was "not something that a setter should take into account". In any case, Citi's contributions were so much lower than those of other panel banks that they were automatically discarded and had no effect on the daily Libor fixes, he pointed out to the court.

Thursfield told the court that he was "not aware of any inappropriate activity by Libor-setters in this period". Swap positions were "to my knowledge never taken into account at Citi", he said, and the submitters did not see the trading positions of other desks.

As for 'low-balling', the practice of under-reporting Libor contributions in order to give a falsely strong impression of a bank's financial strength, "Citi never low-balled", he said. Citi was able to access unusually cheap dollar funding in the London markets because of its status as a US bank, which gave lenders more comfort about its ability to repay.

Hayes faces eight charges of conspiracy to defraud and has pleaded not guilty. The trial continues.

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