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My understanding is that the EURIBOR rate is an index that attempts to track the overnight interest rate that banks lend to each other at. These numbers are not
by tvladeck 9y ago
My understanding is that the EURIBOR rate is an index that attempts to track the overnight interest rate that banks lend to each other at. These numbers are not public (the trades are made "over the counter"), so the body that sets the rate relies on information given to them by the banks. To calculate it, they do something like taking the median of all submissions.
At the same time, there is a lot of money riding on what the EURIBOR is at any time. The allegation is that this guy (and others) conspired to change their submissions to change the listed EURIBOR and make a lot of money.
I'm no expert though, and I could be wrong in my understanding.
- blackrock 9y agoThanks. This was a more detailed answer. I didn't see this anywhere in the article.
- nubbins 9y agoEssentially (for example) the trader has a position that makes money if LIBOR goes down, so he calls the LIBOR submitter at his bank or someone he knows through contacts at another bank and says "hey it would be nice if your 3 month LIBOR could go from .7% to .65%", and the submitters who were themselves often low level functionaries just did it as a favor. Though they could only move it within bank guidelines so the profits made were not huge in any case.