No link between wash trades and Libor skew, Hayes tells court

Promises of trades 'were not reward for help rigging benchmark'

Tom Hayes

Wash trades intended to channel extra fees towards brokers were not a payoff for help rigging the Libor benchmark, former UBS trader Tom Hayes argued again in court today (July 15).

Hayes is appearing in London's Southwark Crown Court facing eight charges of conspiracy to defraud linked to the Libor-rigging scandal. He has pleaded not guilty to all charges.

Earlier in the trial, the court saw transcripts of online chats and telephone conversations between Hayes and various brokers (who cannot be named for legal reasons), in which he seemed to ask the brokers to push the day's Libor fixes higher or lower for his benefit. In exchange he apparently promised them large deals, or even wash trades – a practice of putting on two opposing trades at the same price point simultaneously – which would have no commercial benefit for UBS but would allow the bank to pay brokerage fees to the brokers. "If you keep fixes unchanged, I will do one humungous fucking deal with you," he told a broker at one point.

Libor trial: latest updates
Day-by-day coverage of Tom Hayes' Libor trial

But, under cross-examination by the prosecution today, Hayes denied there was any link. "Any deals I did with [the broker] were entirely a function of whether my book was doing OK," he said. And, he added, brokers in any case had little influence over Libor rates. "[The broker] didn't have the power to keep six-month Libor unchanged... I had no way of knowing what he did or if it affected my trade book at all." He told the brokers of his exposure to Libor because "the more money the [Hayes's] desk makes, the more brokerage we can afford to pay", he added.

The prosecution referred to another transcript from December 2008, in which Hayes discussed his need for a low Libor fix over the New Year period and offered a wash trade, and asked Hayes: "Don't you accept that you are rewarding him for his help in pushing Libor down?"

"No, I talk with him all the time, this is not some unique thing," Hayes replied. "I would not characterise this as a reward. Libor would have come off anyway over the [year-end] turn." And he argued that, in the context of a million-dollar monthly brokerage bill, individual deals worth only $30-60,000 to the broker's firm and $10-20,000 to the broker personally were "really quite minor". 

The prosecution also discussed an incident from 2006, when Hayes was still a trader with RBC. In a 2013 interview with the UK Serious Fraud Office after his arrest, Hayes said he had seen a US dollar Libor submission from UBS that he thought "was not completely accurate" and had reported it to his superiors. RBC dollar trader Mark Lowings had then called UBS under the pretext of asking for a bid/offer price quote, which had turned out to be "miles away" from the bank's Libor submission, and had also promised to report the incident to the British Bankers' Association, which at the time was responsible for Libor.

But in court today Hayes said that there was "no such thing as an accurate rate" for Libor and denied he had complained.

"You were complaining because you thought they were cheating you?" asked Mukal Chawla, the prosecution lawyer.

"No, it was just a fact of life that banks set rates commercially," Hayes replied.

The trial continues.

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