ICAP Said to Keep Liability for ISDAfix Case After Tullett Deal

  • Barclays settled first ISDAfix case in May for $115 Million
  • ICAP's 'Treasure Island' desk at heart of CFTC's ISDAfix probe

Even though ICAP Plc is selling a division at the heart of a trading scandal, it’s retaining any future legal liability, according to a person familiar with the matter.

ICAP agreed Wednesday to sell the voice-brokerage division to Tullett Prebon Plc for more than 1 billion pounds ($1.5 billion), but it will still have to pay any fines or face other enforcement actions that result from the ISDAfix interest-rate benchmark manipulation investigation, according to the person, who asked to not be identified because the information was private.

The U.S. Commodity Futures Trading Commission found evidence in 2013 that traders at Wall Street banks instructed ICAP brokers to buy or sell as many interest-rate swaps as necessary to rig the ISDAfix benchmark by moving it to a predetermined level, a person familiar with the matter said at the time. Doing so helped banks reap millions of dollars in trading profits, costing companies and pension funds, the person said. Barclays Plc agreed in May to pay $115 million to resolve claims it attempted to manipulate ISDAfix, the first enforcement action in the case. At the time, Barclays said the ISDAfix investigation was “industrywide.”

Serra Balls, an ICAP spokeswoman, declined to comment.

“Tullett Prebon will be indemnified by ICAP for certain liabilities, principally relating to regulatory investigations or litigation including those already in the public domain,” Tullett said in its statement announcing the agreement.

The CFTC investigation centers on ICAP’s U.S. interest-rate swap desk, nicknamed Treasure Island because brokers there were paid as much as $7 million a year at the market’s peak, two people with knowledge of the matter said in 2013. The global interest-rate benchmark is used by banks, corporate treasurers and money managers to determine borrowing costs and to value much of the $381 trillion of outstanding interest-rate swaps.

The CFTC released some of the more than 1 million e-mails and recorded phone calls gathered in its investigation when it settled with Barclays in May.

It was a simple process, according to the CFTC: Barclays traders told their brokers to buy or sell as many interest-rate swaps as needed just before 11 a.m. New York time to push the benchmark in the desired direction.

On Sept. 10, 2008, as the global financial system teetered on the brink of its worst crisis since the Great Depression, another Barclays trader watched a colleague trade. He was impressed.

“You did well at the 11 o’clock fix, man,” he said to a broker, according to the CFTC complaint. “Sounded like you were actually holding the spreads up with your hands; like, it felt like you were bench pressing them over your head.”

Here’s how a broker described the process to a trader in 2007, according to the CFTC: “If you want to affect it at 11, you tell me which way you want to affect it we’ll, we’ll attempt to affect it that way.”

The only brokerage used to set the ISDAfix rate during those years was ICAP.

(An earlier version of this story was corrected to fix the spelling of Serra Balls’s name in the fourth paragraph.)

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