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Posted: November 19, 2018

Alleged Manipulation of the Singapore Benchmark Rates

In this post, we cover the alleged facts and procedural history of FrontPoint Asian Event Driven Fund, Ltd. et al v. Citibank, N.A. et al., 16-cv-05263 (SDNY) (“Frontpoint”), as detailed in Plaintiffs’ Second Amended Complaint and an Opinion and Order Granting in Part and Denying in Part Defendants’ Motions to Dismiss (the “Decision”) issued on October 4, 2018 by Judge Hellerstein.

Overview

The allegations in Frontpoint concern alleged manipulation of the Singapore Interbank Offered Rate (“SIBOR”), a topic which we have not yet specifically covered on our blog, although it is similar in theory to the benchmark rate manipulation alleged in the In re LIBOR litigation, which have posted in depth on several times (see here and here and here and here and here). A separate post will cover which of Plaintiffs’ claims in the SAC Judge Hellerstein ruled in the Decision survived, which did not, and why.

Plaintiffs FrontPoint Asian Event Driven Fund, Ltd. and Sonterra Capital filed this action on August 1, 2016. The Court issued an order grating in part and denying in part Defendants’ motion to dismiss Plaintiffs’ First Amended Complaint on August 18, 2017. In that order, the Court granted Plaintiffs leave to amend; they accordingly filed their Second Amended Complaint (“SAC”). Defendants have moved to dismiss the SAC, on the grounds that Plaintiffs’ antitrust claims, RICO claims, and claims for breach of the implied covenant of good faith and fair dealing were inadequately plead, that Plaintiffs lacked antitrust standing, and that Plaintiffs lacked personal jurisdiction over certain of the Defendants.

The SIBOR Rate-Setting Process

The processes for formulating the relevant benchmark rates are similar to that of the London Interbank Offered Rate for the U.S. dollar in the In re LIBOR litigation, except here there are three benchmark rates at issue.

  • The “USD SIBOR” benchmark rate represents “”the cost of borrowing funds in the Singapore market and reflects the average competitive rate of interest charged on interbank loans denominated in U.S. Dollars”;
  • The “SGD SIBOR” benchmark rate represents “the cost of borrowing funds in the Singapore market and reflects the average competitive rate of interest charged on interbank loans denominated in Singapore Dollars”; and
  • “SOR” reflects the volume-weighted average price of foreign exchange swaps, where exchanges of SGD Dollars for US Dollars are agreed to be made in the future.

The Association of Banks in Singapore (“ABS”), a trade group, calculates USD SIBOR and SGD SIBOR (together, “SIBOR”) using daily submissions received by its agent Thompson Reuters from a panel of banks which Plaintiffs allege are made up of 17 members; each panel member submits “the interest rate at which it could borrow U.S. and Singapore dollars in the interbanks market.” Specifically, the daily submission by each panel member was supposed to be the “rate at which it could borrow funds, were it to do so by asking for and then accepting the interbank offers in reasonable market size, just prior to 11:00 AM Singapore time.” (SAC ¶ 169.)

Affiliates of Australia and New Zealand Banking Group, Bank of America, BNP Paribas, Citibank, Credit Agricole, Credit Suisse, DBS, Deutsche Bank, HSBC, ING Bank, JPMorgan Chase, Macquarie, Oversea-Chinese Banking Corporation, Royal bank of Scotland, Standard Chartered Bank, Bank of Toyko-Mitsubishi UFJ, UBS, and United Overseas Bank are alleged to have been members of the SIBOR panel during the relevant time period and are defendants in this action.

Plaintiffs’ Allegations

Plaintiffs allege that ABS’ own rules required that each rate be submitted without reference to other panel members’ rates, effectively requiring the banks to “independently exercise good faith judgment and submit an interest rate based on its own expert knowledge of market conditions . . . [and that] the daily submissions of each bank . . .remain confidential until after SIBOR was finally computed and published . . . “ (Id., ¶ 170.) Thomson Reuters, on ABS’ behalf, calculates the SIBOR rate for each tenor by averaging the middle half of all submissions. (Id. ¶ 164.) It then publishes the calculated SIBOR rate publicly.

Thomson Reuters similarly collects submissions from certain banks relating to the cost of borrowing Singapore dollars in foreign exchange swaps (the “SOR” benchmark rate), except it calculates that benchmark rate based on the volume-weighted average price of swap transactions entered between 7:30 A.M and 4:30 P.M. Singapore time. (Id. ¶ 164.) Affiliates of Bank of America, Barclays, Citibank, Commerzbank, Credit Agricole, Credit Suisse, DBS, Deutsche Bank, HSBC, JPMorgan Chase, Royal Bank of Scotlabnd, Standard Chartered Bank, Bank of Toyko-Mitsubishi UFJ, UBS, and United Overseas Bank are alleged to have been members of the SOR panel during the relevant time period and are defendants in this action.

SIBOR and SOR rates are used as “benchmark” in that they are incorporated by reference in various derivative transactions, including at least interest rate swaps, forward rate agreements, foreign exchange forwards, and foreign exchange swaps, in order to set the applicable interest rate for each transaction. Plaintiffs allege that between 2007 and 2011, Defendants conspired to each submit rate quotes to ABS that were artificially manipulated to be higher or lower than the true cost of borrowing; this was done, according to Plaintiffs, in response to requests from traders of derivates based on SIBOR or SOR (including U.S.-based traders) who were affiliated with the panel-member Defendants, so that those traders’ “long” or “short” positions would be benefited. Plaintiffs allege that each panel member honored request from other members to artificially manipulate the submitted rate quotes in order to serve a “collective financial benefit.”

This post was written by John F. Whelan.

We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at jlundin@schlamstone.com or John F. Whelan at jwhelan@schlamstone.com or call John Lundin or John Whelan at (212) 344-5400.

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