The European Commission has fined 8 international financial institutions a total of 1,712,468,000 for participating in illegal cartels in markets for financial derivatives covering the European Economic Area (EEA).
Four of these institutions participated in a cartel relating to interest rate derivatives denominated in the euro currency. Six of them participated in one or more bilateral cartels relating to interest rate derivatives denominated in Japanese yen.
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Such collusion between competitors is prohibited by Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the EEA Agreement.
Both decisions were adopted under the Commission’s cartel settlement procedure; the companies’ fines were reduced by 10% for agreeing to settle. See also MEMO/13/1090.
Joaquín Almunia, vice-president in charge of competition policy, European Commission, said: "What is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other. Today’s decision sends a clear message that the Commission is determined to fight and sanction these cartels in the financial sector. Healthy competition and transparency are crucial for financial markets to work properly, at the service of the real economy rather than the interests of a few."
Interest rate derivatives (e.g. forward rate agreements, swaps, futures, options) are financial products which are used by banks or companies for managing the risk of interest rate fluctuations. These products are traded worldwide and play a key role in the global economy.
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By GlobalDataThey derive their value from the level of a benchmark interest rate, such as the London interbank offered rate (LIBOR) – which is used for various currencies including the Japanese yen (JPY) – or the Euro Interbank Offered Rate (EURIBOR), for the euro.
These benchmarks reflect an average of the quotes submitted daily by a number of banks who are members of a panel (panel banks). They are meant to reflect the cost of interbank lending in a given currency and serve as a basis for various financial derivatives.
Investment banks compete with each other in the trading of these derivatives. The levels of these benchmark rates may affect either the cash flows that a bank receives from a counterparty, or the cash flow it needs to pay to the counterparty under interest rate derivatives contracts.
The cartel in Euro interest rate derivatives (EIRD)
The EIRD cartel operated between September 2005 and May 2008. The settling parties are Barclays, Deutsche Bank, RBS and Société Générale.
The cartel aimed at distorting the normal course of pricing components for these derivatives. Traders of different banks discussed their bank’s submissions for the calculation of the EURIBOR as well as their trading and pricing strategies.
The Commission’s investigation started with unannounced inspections in October 2011 (see MEMO/11/711). The Commission opened proceedings in March 2013.
Barclays was not fined as it benefited from immunity under the Commission’s 2006 Leniency Notice for revealing the existence of the cartel to the Commission.
Deutsche Bank, RBS and Société Générale received a reduction of their fines for their cooperation in the investigation under the Commission’s leniency programme. These companies received a further fine reduction of 10% for agreeing to settle the case with the Commission.
In the context of the same investigation, proceedings were opened against Crédit Agricole, HSBC and JPMorgan and the investigation will continue under the standard (non-settlement) cartel procedure.
The cartels in Yen interest rate derivatives (YIRD)
In the YIRD sector, the Commission uncovered 7 distinct bilateral infringements lasting between 1 and 10 months in the period from 2007 to 2010. The collusion included discussions between traders of the participating banks on certain JPY LIBOR submissions.
The traders involved also exchanged, on occasions, commercially sensitive information relating either to trading positions or to future JPY LIBOR submissions (and in one of the infringements relating to certain future submissions for the Euroyen TIBOR – Tokyo interbank offered rate).
The banks involved in one or more of the infringements are UBS, RBS, Deutsche Bank, Citigroup and JPMorgan. The broker RP Martin facilitated one of the infringements by using its contacts with a number of JPY LIBOR panel banks that did not participate in the infringement, with the aim of influencing their JPY LIBOR submissions.
The Commission opened proceedings in February 2013. UBS received full immunity under the Commission’s 2006 Leniency Notice for revealing to the Commission the existence of the infringements. Citigroup also benefited from full immunity for its participation in one bilateral infringement.
For their cooperation with the investigation, the Commission granted fine reductions to Citigroup, Deutsche Bank, RBS and RP Martin, under the Commission’s leniency programme. The companies have also been granted a fine reduction of 10% for agreeing to settle the case with the Commission.
In the context of the same investigation, the Commission has also opened proceedings against the cash broker ICAP. This investigation continues under the standard (non-settlement) cartel procedure.
The fines
The fines were set on the basis of the Commission’s 2006 Guidelines on fines (see IP/06/857 and MEMO/06/256).
In setting the level of fines, the Commission took into account the banks’ value of sales for the products concerned within the EEA, the very serious nature of the infringements, their geographic scope and respective durations.
UBS received full immunity for revealing the existence of the cartels and thereby avoided a fine of around 2.5 billion for its participation in five of the seven infringements. Citigroup received full immunity for one of the infringements in which it participated, thereby avoiding a fine of around 55 million.
