Former UBS trader 'key figure' in rate-fixing

Tom Hayes, one of two former UBS traders charged by US prosecutors, is portrayed by American regulators as the kingpin of a three-year campaign that succeeded in manipulating global interest rates.

Mr Hayes (33) was charged with wire fraud and price-fixing, the Department of Justice said in a criminal complaint.

The trader and Roger Darin, a former short-term interest-rates trader at UBS whose responsibilities included the firm’s yen Libor quotes, were also charged with conspiracy.

‘Collusion’

Yen Libor reflects how much banks charge each other for loans in the Japanese currency. Mr Hayes colluded with brokers, counterparts at other firms and his colleagues to manipulate the rate, the justice department said.

Between 2006 and 2009, a UBS trader made at least 800 requests to the firm’s yen Libor rate-setters, about 100 to traders at other banks, and 1,200 to interdealer brokers, according to the Commodity Futures Trading Commission, which didn’t identify Mr Hayes by name.

“Many UBS yen derivatives traders and managers were involved in the manipulative conduct and made requests to serve their own trading positions’ interests,” the commission said. “But the volume of unlawful requests submitted by one particular senior yen derivatives trader in Tokyo dwarfed them all.”

UBS was fined 1.4 billion Swiss francs by US, UK and Swiss regulators on Thursday for trying to rig Libor, which is derived by asking banks how much it would cost to borrow from each other in different rates and currencies. The penalty amounted to about a third of the Zurich-based lender’s net income for 2011 and three times more than the £290 million Barclays agreed to pay in June.

UBS shares fell 1.1 per cent to 15.03 francs in Zurich, paring their gain for the year to 36 per cent.

Scandal

Banks’ manipulation of interest rates has spawned inquiries by half a dozen agencies on three continents in what has become the industry’s biggest and longest-running scandal. More than $300 trillion of loans, mortgages, financial products and contracts are linked to Libor.

US mortgage financiers Fannie Mae and Freddie Mac, for instance, may have lost at least $3 billion from the rates rigging, according to an estimate by a federal auditor.

Lucrative

For traders, even minor Libor moves can fuel profits or losses. Moving the benchmark by just one-fifth of a basis point, or 0.002 per cent, can produce a $250,000 gain on a $50 billion position. Mr Hayes joined UBS in 2006 and worked at the Swiss lender until 2009, when he joined Citigroup. He was dismissed by Citigroup less than a year later for involvement in suspected rate-rigging.

Mr Hayes also worked at Edinburgh-based Royal Bank of Scotland Group from 2001 to 2003.

British fraud prosecutors opened a criminal inquiry this year and last week arrested Mr Hayes, according to people familiar with the matter. However, Mr Hayes has never been accused by British regulators of any wrongdoing. – (Bloomberg)