Nine banks accused of rigging key Canada lending rate


By Ben McLannahan
Financial Times, London
Monday, January 15, 2018

A cluster of big banks has been named in a new lawsuit alleging manipulation of a key benchmark lending rate in Canada, opening up a new front in a global scandal that has led to billions of dollars in fines and penalties.

The plaintiff, the Fire and Police Pension Association of Colorado, is accusing nine banks of colluding over a period of about seven years in the manipulation of the Canadian Dealer Offered Rate (CDOR), in order to boost profits for their derivatives trading businesses.

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CDOR, a benchmark created by the Canadian Bankers' Association, is supposed to reflect the cost of borrowing Canadian dollars in North America, according to the lawsuit, which was filed last Friday in the southern district of New York. 

Instead, the suit claims, the banks conspired to "suppress" CDOR by making artificially low submissions that did not reflect the actual rates at which they were lending.

On "hundreds" of days during the period in question, the suit adds, the banks' submissions were identical, suggesting a pattern of collusion through electronic message platforms, phones, and emails.

By lowballing submissions, the banks stood to make more money from their derivatives businesses, from which they "aggressively" marketed and sold interest-rate swaps, forward-rate agreements, and other CDOR-based products to pension funds, hedge funds, and companies in North America. The lower the CDOR rate, the less interest the banks would owe on such positions. At their peak, the derivatives books were about 50 times bigger than the banks’ aggregate CDOR-based loan portfolios. ...

The class-action lawsuit names nine big banks -- Bank of Montreal, Bank of America Merrill Lynch, Deutsche Bank, Scotiabank, CIBC, HSBC, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank -- along with various subsidiaries, which were the most active dealers in CDOR between August 2007 and June 2014. ...

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