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CFTC charges RP Martin Holdings with manipulation of Yen Libor

The US Commodity Futures Trading Commission (CFTC) has issued an order against RP Martin Holdings Limited, and its subsidiary Martin Brokers (UK) Limited, filing and settling charges of manipulation and attempted manipulation of the London Interbank Offered Rate (Libor) for Yen. 

The CFTC order finds that, from at least September 2008 through at least August 2009, RP Martin brokers on its Yen desk at times knowingly disseminated false and misleading information concerning Yen borrowing rates to market participants in attempts to manipulate, at times successfully, the official fixing of the daily Yen Libor. 
 
RP Martin brokers did so primarily to aid and abet a senior Yen derivatives trader employed at UBS Securities Japan and later at another bank, who was attempting to manipulate Yen Libor to benefit his derivatives trading positions tied to this benchmark. 
 
In exchange for their unlawful assistance, RP Martin brokers accepted payments totalling more than USD400,000, through the form of wash trades that were designed solely to generate commissions for RP Martin.
 
The CFTC order requires RP Martin, among other things, to pay a USD1.2 million civil monetary penalty.  RP Martin also agrees to take specified steps to ensure the integrity and reliability of benchmark interest rate-related market information disseminated by RP Martin. 
 
“Today’s action is part of our on-going efforts to ensure that the Libor rate is free of fraud and manipulation.  Further, this action reflects the Commission’s unwavering commitment to hold those who seek to undermine the integrity of the US financial markets responsible for their actions,” says Gretchen Lowe, acting director of the CFTC’s division of enforcement. 
 
Yen Libor is fixed daily based on rates contributed by panel banks that are supposed to reflect each bank’s assessment of costs of borrowing unsecured funds in the London interbank market. RP Martin, as an interdealer broker, intermediates cash and Libor -based derivatives transactions between banks and other institutions.  As a service to clients and to solicit and maintain business, RP Martin, like other interdealer brokers, also provides banks with market insight, including assessments of where Libor is likely to fix. In providing this market information, interdealer brokers are implicitly representing that such market information reflects their third-party unbiased assessment of borrowing costs and market pricing based on objective, observable data, some of which they uniquely possessed.
 
The CFTC order finds that RP Martin used multiple means to assist the UBS senior Yen trader in his efforts to manipulate Yen Libor.  First, RP Martin brokers provided misleading recommendations to Yen Libor submitters regarding where they should set certain Yen Libor tenors, rather than providing their unbiased evaluations of Yen borrowing costs.  Second, RP Martin brokers contacted certain Yen Libor submitters and asked them directly to move their Yen Libor submissions in a manner that would benefit the senior Yen trader.  Lastly, RP Martin brokers occasionally offered non-existent cash bids, also known as “spoof” bids, to their clients, including Yen Libor submitters, in the hopes that such bids might influence Yen Libor submissions to the benefit of the senior Yen trader.
 
The order further finds that this unlawful conduct occurred in part because RP Martin’s supervision, internal controls, policies and procedures were inadequate.  For example, RP Martin never audited the Yen desk, and failed to question the wash trading activity, even after an RP Martin manager who monitored back-office brokerage activity raised the issue with RP Martin management.
 
The CFTC order requires RP Martin to implement and strengthen its internal controls, policies and procedures governing benchmark interest rate-related market information that RP Martin sends to market participants. 
 
In a related action, the UK Financial Conduct Authority (FCA) issued a final notice regarding its enforcement action against Martin Brokers (UK) Limited and imposed a penalty of GBP630,000, the equivalent of approximately USD1 million.

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