UBS Libor cleared by traders, says Hayes defence

UBS had recipe book for setting Libor submissions to benefit their trading book, according to defence lawyers for Tom Hayes


Swiss bank UBS's Libor-setting process was wedded to the bank's commercial interests, argued the defence lawyer for former trader Tom Hayes at a London court today (July 2).

A document shown to the court in the trial of the former UBS and Citi trader accused of manipulating the London interbank offered rate (Libor), appeared to detail a set of instructions to rate submitters to first clear their submissions with UBS traders.

Defence lawyer Neil Hawes claimed the document, titled "Publishing Libor rates" and circulated among senior staff members in the division from within which Libor submissions were made (the fixed income, currencies and commodities division), "looks to be a sheet that is calculating Libors with a commercial view".


The document specified how Libor rate data should be entered into a UBS spreadsheet.

Hawes presented the document during a cross-examination of witness Ruwan Weerasekera, the chief operating officer for equities at UBS.

One line of the document advised: "For EUR Libors chat Katherine Johnsonon [sic] short EUR desk around 10.30am and ask her if there are any changes to Libor."

Hawes suggested that Katherine Johnson was a trader with derivatives positions affected by the benchmark, although Weerasekera was unable to confirm or deny that statement.

According to the Libor definition at the time, the rate should be submitted by a staff member with "primary responsibility for management of a bank's cash, rather than a bank's derivative book". A trader with derivatives positions hinging on the value of the Libor they were involved in submitting would face a conflict of interest.

In another excerpt, the document stated: "For [yen Libor], use Reuters page ZTIBOT. From the UBS AG column, take off 0.01% up to 1 month, then take off 0.02% up to 12 months and update [the appropriate part of the spreadsheet] with these rates."

Hawes suggested that "ZTIBOT" referred to the Tokyo interbank offered rate (Tibor), the Japanese equivalent of Libor.

He said that would "seem to suggest that there is a fixing between respective benchmarks".

This practice, he argued, would not have been in keeping with the Libor definition from the British Bankers' Association, which said that Libor submissions "should have been a judgement and not a mechanical process".

Libor – which represents the cost of borrowing between banks – should be based on the bank's perception of the cost of borrowing a particular currency just prior to 11am London time, according to the official definition.

Hayes is accused of conspiring with a network of brokers and other bankers to manipulate the benchmark to benefit his own trading positions for personal gain. But the former trader maintains the practice was widespread in UBS and that senior managers were fully conscious of his actions. He has pleaded not guilty to eight charges of conspiracy to defraud.

The court was also shown an email from compliance officer Cintia Goertz following an internal review of UBS's Libor submission procedure in 2009, detailing recommendations based on the findings.

One suggestion was to "review the adequacy and appropriateness of having the responsibility for the Libor submissions being held by the Stir [short-term interest rate] desk".

The Stir desk was involved in trading derivatives as well as setting the Libor submission.

Other recommendations from the review included the designing of new processes, formal record keeping and adding Libor to a database of operational risks.

Weerasekera was unsure if the recommendations from the review were followed through.

The trial continues.

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