Antitrust Law Daily Wrap Up, ANTITRUST NEWS: ICAP fined €14.9 million by EC for facilitating yen interest rate derivatives cartels, (Feb 4, 2015)

By Edward L. Puzzo, J.D.

The European Commission has imposed a fine of €14.9 million against ICAP plc, a UK-based broker, for antitrust violations arising from the trading of yen interest rate derivatives (YIRD), the Commission announced today.

Previously, in December 2013, as the result of an investigation into cartels in the interest rate derivatives industry, the Commission imposed fines totaling €669 million against a number of major financial institutions that had admitted their involvement in one or more cartels in the YIRD sector, allowing the Commission to settle with them: banks UBS, RBS, Deutsche Bank, Citigroup and JPMorgan and broker RP Martin.

Broker ICAP chose not to settle the case. Proceedings against it therefore continued under the normal procedure. The Commission reported that its investigation uncovered that ICAP facilitated six of the seven cartels in the YIRD sector through various actions that contributed to the anticompetitive objectives pursued by the cartel, specifically:

• disseminating misleading information to certain Japanese yen (JPY) London interbank offered rate (LIBOR) panel banks, aimed at influencing certain panel banks that did not participate in these infringements to submit JPY LIBOR rates in line with the adjusted 'predictions' or 'expectations';

• using its contacts with several JPY LIBOR panel banks that did not participate in the infringements, with the aim of influencing their JPY LIBOR submissions; and

• serving as a communications channel between a trader of Citigroup and a trader of RBS and thereby enabling the anticompetitive practices between them.

Commissioner Margrethe Vestager in charge of competition policy said: "Today's decision to fine the broker ICAP sends a strong signal that assisting companies in their cartel activities has severe consequences. It marks the successful completion of our antitrust investigation in the Yen interest rate derivatives sector – but not the end to our efforts to fight anticompetitive practices in financial markets."

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, the EC explained. These products are traded worldwide and play a key role in the global economy. They 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. This benchmark reflects an average of the quotes submitted daily by a number of banks who are members of a panel. It is intended to reflect the cost of interbank lending in Japanese yen and serves as a basis for various financial derivatives. The level of the benchmark rate may affect either the cash flows that a bank receives from counterparty, or the cash flow it needs to pay to the counterparty under interest rate derivatives contracts.

Companies: ICAP plc

News: Antitrust