Barclays, BofA, Citigroup Sued for ISDAfix Manipulation

Barclays Plc, Bank of America Corp., Citigroup Inc. and 10 other banks were accused in a lawsuit of conspiring to manipulate ISDAfix, a benchmark used to set rates for interest rate derivatives and other financial instruments.

The Alaska Electrical Pension Fund sued yesterday in Manhattan federal court, claiming the banks colluded to set ISDAfix at artificial levels that allowed them to manipulate payments to investors in the derivatives. The banks’ actions affected trillions of dollars of financial instruments tied to the benchmark, the pension fund said.

The banks communicated using electronic chat rooms and other means of private communication, typically submitting identical rate quotes beginning at least in 2009, the Alaska fund said.

The pension fund is seeking to represent all investors that took part in interest rate derivative transactions tied to ISDAfix from January 2006 to January 2014. It’s seeking unspecified damages, which may be tripled under U.S. antitrust law.

Mark Lane, a spokesman for London-based Barclays, and Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, declined to comment on the suit. Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, also declined to comment.

More Defendants

The pension fund also named as defendants Deutsche Bank AG, BNP Paribas SA, HSBC Holdings Plc, Royal Bank of Scotland Group Plc, Credit Suisse Group AG, UBS AG, Goldman Sachs Group Inc., Nomura Holdings Inc., Wells Fargo & Co. and JPMorgan Chase & Co.

ICAP Plc, which administered and brokered transactions that established the ISDAfix rate, is also a defendant in the case.

“We have not been served the complaint and are not prepared to comment at this time,” ICAP said yesterday in an e-mailed statement.

The Alaska fund cited what it called “a paradigmatic example of manipulation designed to keep the ISDAfix rate artificially low.”

On April 21, 2011, for example, prices fell in the 10-year U.S. dollar interest-rate swap approaching the 11 a.m. Eastern time ISDAfix polling window, according to the complaint. After 11, the price rebounded, the fund said.

“Defendants pushed through a series of transactions and submitted executable bids and offers at artificially low fixed rates before the fixing process started in an effort to drive the ISDAfix rate down, and then subsequently reversed course the moment the ISDAfix reference point was set,” according to the lawsuit.

Recorded Calls

Recorded telephone calls and e-mails reviewed by the Commodity Futures Trading Commission show that traders at Wall Street banks instructed ICAP brokers in Jersey City, New Jersey, to buy or sell as many interest-rate swaps as necessary to move ISDAfix to a predetermined level, a person with knowledge of the matter said in August 2013.

By rigging the measure, the banks stood to profit on separate derivatives trades known as swaptions they had with clients who were seeking to hedge against moves in interest rates. Banks sought to change the value of the swaps because the ISDAfix rate sets prices for the other derivatives, which are used by firms such as the Alaska fund, according to the person.

That may run afoul of the 2010 Dodd-Frank Act, which bars traders from intentionally interfering with the “orderly execution” of transactions that determine settlement prices.

Identical Numbers

The pension fund claimed banks reporting price quotes used to set ISDAfix routinely submitted identical numbers, reflecting their collusion.

“This could not have happened without some form of advanced coordination,” the Alaska fund said in its complaint. “Even if reporting banks always responded similarly to market conditions, the odds against contributors unilaterally submitting the exact same quotes down to the thousandth of a basis point are astronomical. Yet, this happened almost every single day between at least 2009 and December 2012.”

The near-identical bank submissions to ISDAfix ended in late 2012, the fund said. The original CFTC subpoenas to ICAP and the banks were issued in November of that year, a person familiar with the matter said last year.

The case is Alaska Electrical Pension Fund v. Bank of America, 14-cv-07126, U.S. District Court, Southern District of New York (Manhattan).

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