UBS AG and JPMorgan Chase & Co. are withdrawing from a panel that sets Australia’s benchmark swap rate and Citigroup Inc. is reducing its role in Malaysia amid increased scrutiny following the global rate-rigging scandal.
UBS stopped contributions for the bank bill swap rate on Feb. 4 and JPMorgan will pull out by the end of this month, David Lynch, Sydney-based executive director at the Australian Financial Markets Association, said by phone today. Citigroup ended submissions for Malaysian ringgit interest-rate swaps and the ringgit spot reference rate against the dollar last week, said two people with knowledge of the matter.
The withdrawals underscore the risk that some rates will become less efficient at determining borrowing costs with fewer global banks participating. Royal Bank of Scotland Group Plc and Barclays Plc are among lenders that have withdrawn from some panels as countries review their benchmarks.
“The reason why they’re pulling out is they’re concerned about regulations and about legal liabilities,” said Sandy Mehta, chief executive officer of Value Investment Principals Ltd. in Hong Kong. “If you have a smaller number of players, you’ll end up in the same spot where you’ll have the risk of inefficient rates over the risk of manipulation.”
JPMorgan advised AFMA on its decision to withdraw from the Australian panel, said Andrew Donohoe, a Sydney-based spokesman for the U.S. bank, without elaborating. Caroline Gurney, a spokeswoman for UBS in Sydney, declined to comment.
“The compliance cost of contributing to global benchmarks has definitely increased in the wake of global regulatory actions,” said Lynch, whose organization represents more than 130 financial firms and publishes the Australian rate.
James Griffiths, a Hong Kong-based spokesman for Citigroup, declined to comment on the lender ending its submissions to the two rates in Malaysia. The New York-based bank continues to contribute to the Kuala Lumpur Interbank Offered Rate, according to data compiled by Bloomberg.
Barclays, UBS and RBS have been fined about $2.5 billion by U.S. and U.K. authorities for attempts to rig benchmarks including the London Interbank Offered Rate, and more than a dozen other firms are under investigation.
UBS through its own investigation found its traders attempted to manipulate benchmarks including the Australian bank bill swap rate, according to a footnote in a Dec. 19 order by the U.S. Commodity Futures Trading Commission imposing sanctions against the Zurich-based bank.
UBS and New York-based JPMorgan follow RBS, which withdrew from the Australian rate-setting group in April. RBS pulled out of several panels last year including for the Tokyo and Hong Kong interbank offered rates following a January announcement of changes to its strategic priorities.
AFMA will look for replacements, Lynch said. JPMorgan’s departure would reduce the panel to 12 members from the maximum 14 if the positions aren’t filled.
The bank bill swap rate is calculated by asking panelists for the actual rates they observe in the brokered market at around 10 a.m. Sydney time. The highest and lowest bids are then sequentially eliminated until six remain.
The quote is used for short-term debt issued by the four main Australian lenders -- Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp.
In Malaysia, the ringgit swap and exchange rates are used by traders for hedging against interest-rate and currency moves and speculating on their direction. Excluding Citigroup, 11 banks now contribute to fixing the rates daily, the data show.
Citigroup in September said it withdrew from the panel of lenders that sets the euro interbank offered rate, citing a dearth of trades between banks in the region. Rabobank International, the biggest Dutch savings bank, exited the panel in January, while Deutsche Bank AG said in February that it would end participation in some Euribor rates.
“The fewer the players in any market, the less liquidity and the less depth to the market,” said Mehta of Value Investment. “It’s not a good sign.”