The Commodity Futures Trading Commission this week brought its latest LIBOR enforcement action. Its targets were the Royal Bank of Scotland and RBS Securities Japan. The CFTC's enforcement order is largely a rendition of snippets from numerous electronic and telephonic conversations between traders and employees responsible for making rate submissions used to determine Yen and Swiss Franc LIBOR. The traders cajoled--usually without much effort--the submitters into raising or lowering rates to benefit their trading positions. The order leaves the reader wondering whether the efforts by traders with an interest in seeing rates driven down were being offset by the equally unseemly efforts of other traders trying to drive them up. Another question worth pondering is whether--particularly in the wake of the CFTC's MF Global and Peregrine debacles--the CFTC ought to be using its resources to pursue this type of behavior, most of which occurred outside the U.S. LIBOR is a benchmark set by a private, non-U.S. organization, but the CFTC hangs its jurisdictional hat on the effect that LIBOR submissions based on "impermissible and illegitimate factors" had on commodities in interstate commerce. Is the CFTC really the regulator best suited to dictate where bank employees in London sit and how frequently supervisors in Romania and Indonesia are monitoring employees, which are two of the many issues addressed by the CFTC's order? Pulling in a $325 million penalty is a tempting feather for the CFTC's cap, but the CFTC might not be the right policeman for this beat.
Fixing LIBOR from Afar