Interdealer brokers, the middlemen who line up buyers and sellers of securities for banks, are emerging as key enablers in the Libor scandal after three firms paid a total of $2.6 billion for rigging global interest rates.
Employees at firms including ICAP Plc, the world’s biggest interdealer broker, and RP Martin Group Ltd., a smaller British competitor, passed on requests from derivatives traders asking rate-setters at others banks to make favorable submissions, e- mails released as part of the global probe of interest rate- rigging show. In some cases, the middlemen took bribes as payment for the services in the form of so-called wash trades, regulators said, without identifying the firms that did.
The brokers assumed greater influence as credit markets froze at the start of the financial crisis in 2007. Bankers charged with making submissions to the London interbank offered rate increasingly relied on information from the brokers to determine what figures to contribute. That left the benchmark vulnerable to manipulation by traders trying to profit from bets on derivatives. The outcome of those bets often depended on where the Libor rate fell on International Money Market dates, or IMMs, the quarterly dates when futures contracts settle.