Terry Smith warned ISDA of rate manipulation in 2010 – reports

Tullett Prebon’s chief executive Terry Smith wrote a letter to the International Swaps and Derivatives Association (ISDA) back in 2010 to question the rate setting process, but was ignored.

According to a letter seen by UK newspaper The Telegraph, Smith demanded an overhaul of the rate setting practices for the $164trn interest swap industry, saying it needed a system that “more clearly reflects price and which is less capable of manipulation”.

The then-chief executive of ISDA Conrad Volstad, who remains a vice president on the committee, rejected the request at the time and said the system was functioning well.

Now, three years down the line, ISDA has appointment management consultant Oliver Wyman to determine if brokers have been manipulating the price of ISDAfix, after regulators at the US Commodity Future Trading Commission (CFTC) began their own investigation.

The ISDAfix rate, which influences the price of derivatives, is set each day by 15 banks submitting prices to brokers at Icap, who then publish a consensus benchmark.

Smith questioned the validity of this process, which uses “a single broker’s screen as a reference page”, and called for responsibility to be removed from Icap and given to an independent “large data distributor”.

Icap is said to be “co-operating” with the CFTC on the matter.


This article was first published on Investment Week

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