It's a real-life financial whodunit – and for now, the main characters remain a mystery.
Last week, Reuters reported that it had reviewed an intelligence bulletin from the U.S. Federal Bureau of Investigation describing a case of suspected market manipulation by traders at two unnamed banks, one American and one Canadian.
The traders at the two banks were suspected of conspiring to rig prices for interest-rate swaps by "front-running" large orders from their clients – in this case, mortgage giants Fannie Mae and Freddie Mac, Reuters said.
So which Canadian bank is it? Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce and Bank of Nova Scotia declined to comment on the record in response to queries from The Globe. Toronto-Dominion Bank said that it had "nothing to add." An executive at National Bank of Canada said that it was not the bank mentioned in the bulletin.
It's unclear whether the FBI probe has reached an advanced stage and no one has been formally accused of wrongdoing. "It sounds like they're still conducting an investigation and looking for evidence," said Dennis Lormel, the chief executive officer of DML Associates and the former head of the FBI's financial crimes unit. "They're looking for guidance or help to develop the evidence out there."
The Reuters report, quoting the FBI bulletin, said that federal agents interviewed bank workers in 2012 and 2013, who told them that senior executives had "planned and encouraged this behaviour because it led to higher revenue for their respective parent banks."
The bureau had "medium confidence" in the information it received, which came from "multiple corroborating sources," the bulletin said, according to Reuters. But investigators had "low confidence" that such behaviour could result in prosecutions, the bulletin added.
A senior compliance officer for a large U.S. bank said that such statements from the FBI could also be aimed at encouraging traders to come forward. Saying there's a low chance of prosecution might be a way of "drawing people out, to make them feel more comfortable," he said.
"It is standard policy for the FBI to share intelligence information with our private-sector partners to help protect our economy, thwart crime, and prevent threats impacting American businesses," said Shelley Lynch, a spokesperson for the FBI's Charlotte, N.C., field office, which sent out the bulletin. She declined to comment further.
Fannie and Freddie are government-sponsored entities that bundle vast numbers of mortgages into securities that can be sold to investors. Because the two institutions take on large risks related to the direction of interest rates, they are highly active in the market for swaps – derivatives where two parties exchange a series of interest-rate payments.
The market for interest-rate swaps is by far the largest among of all categories of derivatives: the notional amount outstanding as of June, 2013, for such contracts was $426-trillion (U.S.), according to the Bank for International Settlements. Players in the market include local governments, hedge funds and pension funds.
With files from reporter Boyd Erman