As ISDAFIX Becomes Next LIBOR, Can GOFO Manage To Avoid The Spotlight?

As ISDAFIX Becomes Next LIBOR, Can GOFO Manage To Avoid The Spotlight? In the wake of the recent LIBOR benchmark interest rate rigging scandal and successful prosecution of a number of global investment banks for participating in LIBOR manipulation, a new interest rate rigging scandal is gathering steam.
Allegations surfaced last year that ISDAFIX, a similar global interest rate benchmark, had been rigged by a group of global banks, and these allegations are under investigation by a number of regulators including the US CFTC and the UK FCA. While the regulators have not provided any feedback as of yet, the class action suits by impacted investors are now beginning.
ISDAFIX is a set of global benchmarks for interest rate swaps that are used by the worldwide financial community to price and settle contracts based on these interest rate derivative swap contracts. The interest rate swap market is worth over $450 trillion, and these products and contracts are used by a wide spectrum of participants from large corporates to national pension funds and investment houses. The International Swaps and Derivatives Association (ISDA) owns the ISDAFIX benchmark.
The first class action suit in the US has just been filed by the Alaska Electrical Pension Fund, and is seeking compensation for alleged manipulation of the ISDAFIX benchmark rates. The class action suit accuses 13 investment banks and one brokerage of manipulating the benchmark rates to artificial levels over a multi-year period so as to avoid paying out to clients on the interest rate contracts.
The defendants comprise the largest investment banks in the world including Barclays, JP Morgan, Deutsche Bank, Goldman Sachs, HSBC, UBS, and Credit Suisse, (which are all market making members of the London Bullion Market Association) and also Citigroup, and Bank of America. Brokerage house ICAP is also named in the class action suit. ICAP was in charge of calculating the US dollar version of ISDAFIX by averaging rates which were submitted by the contributing banks.
The Alaskan pension fund suit contains analysis by legal and investment consultancy Fideres. Fideres was also the consultancy that provided analytical evidence of price manipulation for a number of recent class action suits that allege price manipulation of the London Gold Fixing benchmark.
According to the suit, analysis over 2009-2012 by Fideres finds that on nearly every day the banks in question were all submitting virtually identical rates to each other, and that when it became known in December 2012 that UBS had begun cooperating with regulators over the LIBOR investigations, only then did the submitted rates start to diverge.
Following the manipulation allegations, the owner of the benchmark, ISDA, took the administration of the benchmark away from ICAP, and more recently, a new administrator ICE Benchmark Administration has been appointed by ISDA. ICE is the owner of numerous financial exchanges and clearing houses, such as the NYSE Euronext exchange.
After the LIBOR scandal, the LIBOR benchmark became the world’s first regulated benchmark. LIBOR is now regulated by the UK FCA, and coincidentally, LIBOR it is also administered by ICE Benchmark Administration. There is an expectation in the market that the ISDAFIX benchmark will probably also become a regulated benchmark.

This post was published at Gold Core on 8 September 2014.