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Libor rate-rigging probe looks into impact on Canadian bond market Add to ...

An international probe into alleged price fixing of Japanese interest rates by six international banks is looking into whether Canadian companies and institutions were damaged by the suspected market manipulations.

In its effort to determine the scope of the problem, Canada’s federal Competition Bureau has obtained, through a court order, internal documents from several international banks’ Canadian operations, to determine if the alleged scheme took a toll on firms in the bond market.

Manipulation of the yen London interbank offered rate – called the yen Libor – would affect organizations trading in interest-rate derivatives, in particular companies and governments that do business or raise money in Asia to hedge interest rates.

Court documents made public this week by the federal Competition Bureau help explain why the international investigation has spread to Canada.

“The alleged conspiracy is international in nature and is currently being investigated in foreign jurisdictions,” say the court documents.

“The Bureau is co-ordinating its investigation … and co-operating with these foreign jurisdictions,” the documents say.

The probe already involved several countries in Asia, Europe and North America.

Canada’s competition watchdog has been tapped to scrutinize the Canadian operations of at least six international banks, including: HSBC Bank , Royal Bank of Scotland, Deutsche Bank AG, JPMorgan Chase and Citibank .

Although five banks have been named in the documents, the Competition Bureau lists a co-operating bank in the probe. The Wall Street Journal, citing sources, reported that the co-operating bank is Swiss-based UBS AG .

At issue is whether those banks held discussions about trying to fix the yen Libor rate, which deals with Japanese bonds, between 2007 and 2010.

According to the court documents, the Competition Bureau wants the banks to produce records from their Canadian operations detailing discussions on interest rates between a group of traders and brokers involved in trading derivatives, which are linked to benchmark interest rates.

None of the allegations have been proven in court, and no banks have been charged with any wrongdoing.

The involvement of the Competition Bureau comes at a time when the Canadian watchdog is becoming more aggressive in pursuing anti-competitive behaviour within the corporate sector, including taking more companies to court over alleged violations.

In interviews Friday, derivatives experts offered some examples of which Canadian counterparties could have been hurt by the alleged manipulation of yen.

Governments that have issued bonds in yen, and have hedged their interest rate and currency exposure with derivatives, are one possibility.

Canadian companies with big businesses in Japan, or that sell products to Japanese buyers and create income in yen that they want to hedge, are another.

In particular, the documents related to the Libor case say the Competition Bureau wants to determine whether there was any “harm suffered in Canada as a result of the alleged offences.”

The investigation came to light this week when the Competition Bureau documents, some which date back to May, 2010, surfaced in Ontario Superior Court, indicating that the probe into interest-rate manipulation has been going on for almost a year, if not longer.

The probe is sweeping in its efforts to obtain various types of communication between bankers. Among the documents the bureaus is seeking to obtain are “records of communications concerning the over-the-counter interest rate derivative contracts, linked to yen Libor rates and entered into with Canadian counterparties.”

The bureau is also demanding that the banks produce transcripts of instant-messaging chats between traders, e-mail records, meeting records and details of telephone conversations, along with names of all Canadian counterparty banks they did business with.

With files from reporter Boyd Erman in Toronto

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