Here We Go Again, Derivatives (ISDAFix)


No, really, banks rigging markets?

Banks are leaving the panel that sets ISDAFix, the benchmark for the $379 trillion swaps market, as regulators probe suspected manipulation of the rate.

HSBC Holdings Plc (HSBA), Europe’s largest bank by assets, and Japan’s Mizuho Financial Group (8411) stopped contributing to the ISDAFix dollar rate between November and January, and haven’t been replaced, documents on the International Swaps and Derivatives Association’s website show. The industry group didn’t give any reason for the lenders’ departure.


There’s no reason for banks to rig such a market, right?  I mean, it’s only the size of the global economy 100x or so over in notional value, with literal billions riding on a single basis point.

The allegation?

The CFTC is probing whether ICAP brokers delayed updating rate-swaps prices on the so-called 19901 screen, which displays swaps prices, after they facilitated a trade between banks, according to one person familiar with the matter and a former broker in ICAP’s Jersey City rate-swaps group who both asked not to be identified because of the investigation.

Yeah, nothing like holding back a price for profit.

This sort of crap, incidentally, is why allowing “bespoke” execution of these things is an outrage.  We’re talking about contracts where the solvency of the side that’s short (and thus may have to pay) is open to question yet unable to be proved up since there are no public posted margins (where everyone can see them — or your failure to deliver them) and the size of the transactions dwarf the economy of the nation in which you operate.

I have long held that there is only one way to stop the BS that goes on these markets, and that’s by forcing all derivative contracts onto public exchanges where bid, offer and trade prices are independently posted as the transaction takes place, visible to everyone, and in addition public compliance with published and known margin requirements can be ascertained.

That would put an instant stop to the games.

But those games make banks billions at the expense of their customers every single year.  There is no argument in terms of market fairness or anything else for that matter, other than the game of “screw you” that banks run on their customers and hiding the true state of a financial firm’s balance sheet, that can be raised for not forcing all of these contracts onto public exchanges.

What we need to see, in addition to public exchanges for these (and all other) contracts, is this:

Handcuffs by genesis

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