RATE-RIGGING: New toxic Tory links to Iswap – the Libor of derivatives trading


Last night at 7.15 pm BST, the Telegraph’s James Kirkup posted a piece on Paul Tucker’s ‘evidence’ headlined ‘Libor scandal may be going on elsewhere’. It must rank as the least assumptive and most understated headline of all time. I can think of a few that could beat it – ‘Some criminals may commit more crimes after release, says new report’ – but not many.

As I posted a couple of days ago, Liboresque scandals are going on everywhere all the time. But this morning I bring you news of senior Tories engaged in a similar sector to Libor – and one which is open to all the crookery, skulduggery, fraud and law-bending of which poor Paul Tucker only became aware just a few short months ago – right under the regulator’s bloody nose.

You will obviously know about Room 101 as featured in 1984. Now learn about Page 19901.

Since 2010, former Tory treasurer Michael Spencer has added another arrow to his quiver-full of greed-seeking missiles: as well as ICAP, he also has Iswap. ISwap is a joint venture between ICAP and four banks – Barclays, Bank of America Merrill Lynch, Deutsche and JP Morgan. In the light of the Libor scandal, you can just imagine how safe the Chinese walls are in this little den of thieves. The idea of criminally implicated banks and a shady broker co-owning and supervising this by now leading trading platform is not designed to inspire the confidence of the populace. But when you read the rule-book, you realise pretty quickly that someone should be reading the Riot Act.

The internet page 19901 is used as a reference when banks settle options on swaps and underwrite corporate bonds….and to decide what rate of interest will be paid to investors holding structured instruments and for valuing asset portfolios. 19901 is also treated as a benchmark in official derivatives documents created by the International Swaps and Derivatives Association, which Sloggers will remember as the organisation unable to spot a default from three inches.

The page was first of all organised by Telerate, a data group, which posted prices using information supplied by Tullett Prebon (director Michael Fallon, current Tory Party treasurer) . When Telerate went bust, Reuters acquired the ashes,  and Icap (owner Michael Spencer, disgraced former Tory Party treasurer) now supplies the ‘data’. And as Icap is working in the sector via Iswap with four very big and ethics-free banks, you can see who is to ‘decide what rate of interest will be paid‘ to investors.

Funnily enough, since Iswap was formed, there has been some heated debate over the figures at 19901. Since around Autumn 2011, controversy has grown around the behaviour of on-screen prices around the crucial 11am point each day – precisely when the page is used as a reference point for settling options on swaps and corporate bonds.  Several hours before and after 11am, prices are usually stable; however, just before 11 they can gyrate – particularly on days when there are heavy sales of corporate bonds or large options trades expiring.

This $40bn Faberge egg of a sector depends on six banks and three broker-dealers controlling the visibility of swap prices…and Iswap is the dominant player. Visibility is the key word, because in the $614 trillion OTC derivatives trade –  i.e., the the interbank sector, where banks deal amongst themselves in massively pointless towers of potentially system-shattering paper derivatives – such OTC business remains resolutely out of the rest of the market’s disbelief-blinking eyes.

You can just imagine the chances of these prices not being bent at will to benefit the charmed circle in and around Iswap. And you can just imagine how easy it is for such dealing to wind up being monetised….thus creating giga-inflation in the real world. So given the Conservative Party has so many friends, supporters, donors and treasurers intimately involved in an activity which may one day blow away the global financial system and create a dire need for new jail construction, I would venture to suggest that these are somewhat radioactive links for it to retain.

For once, I will offer some direct advice to the Tory Right Wing, Graham Brady, the 1922 Committee, old Uncle John Redwood and all: grow some balls and kick Camerlot out, or your Party may well be unelectable forever within two years. And I know that several well-connected Sloggers out there will be happy to pass on the advice.

If they want to do nothing about it anyway, that’s fine too: the vacuum created by a disgraced Tory Party of pariahs would create the perfect vacuum for genuine unaligned reformers and radical realists like me to fill. Anything to keep the Barmy Left at bay.

Has The Slog got anything new against the founder of ISwap? Tune in tomorrow.