Nine large banks, including HSBC and several Canadian lenders, have been accused in a US lawsuit of conspiring to rig a Canadian rate benchmark to improve profits from derivatives trading, Reuters reports.
The complaint, filed by a Colorado pension fund last Friday, accused the banks of suppressing the Canadian Dealer Offered Rate (CDOR) from Aug. 9, 2007, to June 30, 2014, according to the report.
The Fire & Police Pension Association of Colorado, which filed the case in US District Court in New York City, believes the banks hoped to reduce interest they would owe investors on CDOR-based derivatives transactions in the US and generate potentially billions of dollars of improper profit.
The fund is seeking unspecified damages for investors in the proposed class action for alleged violations of US antitrust, commodity and anti-racketeering laws over the nearly seven-year period.
The banks in the dock are Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Bank of America, Deutsche Bank and HSBC.
CDOR is a rate at which banks will lend to corporate clients using bankers’ acceptances, a short-term credit instrument. It is now known as the Canadian Dollar Offered Rate, and calculated daily by Thomson Reuters based on rate submissions from banks.
Canadian regulators updated the CDOR-setting process after the Investment Industry Regulatory Organization of Canada in January 2013 identified the “potential” for manipulation.
That came after regulators worldwide began accusing, and eventually fined, many banks for manipulating the London Interbank Offered Rate and other benchmarks.
According to Friday’s complaint, the Colorado fund conducted more than US$1.2 billion of CDOR-based derivatives transactions, including with seven defendants, during the alleged conspiracy.
The fund said banks coordinated false CDOR submissions after their CDOR-based derivatives portfolios, on which they made interest payments, had grown far larger than their CDOR-based loan portfolios, on which they collected interest.
It said the conspiracy was intended in part to address this imbalance, and included a 151-day stretch when four banks made identical submissions.
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