By Muvija M and Carolyn Cohn
LONDON (Reuters) – Britain’s markets watchdog has fined interdealer broker Tullett Prebon 15.4 million pounds ($19.2 million) for improper conduct, including its involvement in the manipulation of the Libor rate, the regulator said on Friday.
The London interbank offered rate (Libor) rigging scandal that unfolded in 2012 led to billions of dollars in fines for major banks and jail sentences for traders convicted of manipulating the benchmark for profit.
Libor is a global benchmark for interest rates.
From 2008 to 2011, a number of Tullett Prebon (Europe) Limited (TPEL) brokers put in place improper trades in order to generate fees that should not have been paid, the Financial Conduct Authority (FCA) said, adding that one of the trade mechanisms identified was a “wash” trade.
“While these trades did not mislead the market, nor amount to market abuse, the wash trades were entirely improper, undermining the proper function of the market,” Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said.
Wash trades are two identical but opposing swaps trades between the same two counterparties, done purely to generate brokerage fees.
Citing a wash trade from 2009, the FCA said the motivation for one of the two traders involved in generating such fees for Tullett was assistance from Tullett’s brokers in the attempted manipulation of Libor.
“What I normally do is if I get help on the LIBORS over the month, I normally do, at the end of the month…a couple of like in and outs”, one of the traders said in a telephone conversation with a Tullett broker on Feb 10, 2009.
“Alright mate, so that’s good, because (another trader) wants to pay for his (overseas) trip already,” the broker replied.
Tullett Prebon’s rates division had ineffective controls around broker conduct between 2008 and 2010, the FCA said.
In 2008, a broker persuaded a trader to pay over the market price for a swap to clear a loss at a Tullett office. In return, Tullett paid expenses for the trader and broker for a 10-day trip to Las Vegas and San Francisco.
A senior manager knew about the arrangement, but took no action though this was “clear misuse of entertainment expenditure,” the FCA said.
The FCA also said Tullett Prebon failed to be open and cooperative with the watchdog and a breach occurred between August 2011 and October 2014, relating to the FCA’s request for Tullett Prebon to provide audio tapes of its brokers.
Tullett Prebon became TP ICAP (L:TCAPI) after its merger with ICAP.
TP ICAP said the FCA recognized that TPEL fully cooperated with the investigation into the relevant trades and conducted its own review of certain trades which it disclosed to the FCA.
The FCA had also found that at the time there were inadequate systems and controls in place to deal with the risk of improper broker conduct, the company said in a separate statement.
“None of the individuals involved in the relevant broking activities remain with our firm, which has long since taken the opportunity to significantly enhance its systems and controls to comply with regulatory expectations,” TP ICAP said.