Revolution in Manipulation Law: The New CFTC Rules and the Urgent Need for Economic and Empirical Analyses

Abstract

Three maJOr banks have now admitted that their emp loyees manipulated worldwide interest rates tlu·ough the London lnterbank Offered Rate (Libor), the most widely used interest rate index. Libor is the interest rate term fo r trill ions of dollars of swaps and loans, and its manipulation may have been used to extract billions o f dollars. These allegations come just as commodities manipulation law has been dramatically reformed and the Commodity Futures Trading Commission (CFTC) given vast new reg ulatory powers. T his Aliicle provides the first extended, scholarly analysis of the CFTC's new anti-manipulation rules. We consider the difficulty the rules address: Commodities manipulation c laims have tradition all y faced nearly insuperable obstacles to success in prosecuting manipulations like that of Libor. We then analyze the new rules, including their extension of the CFTC's powers to cover the swap market. The new rules appropriately lower the standards of pleading and proof, and yet the breadth of the new rules invites abuse. Both to implement the new rules and to prevent overuse, we argue for more elaborate, sophisticated, and creative economic analysis than ever before. We provide a wide-ranging overview of empi1ical too ls for assessing manipulation claims, w hile re-engaging a decades-old debate on the place of empiricism in the laws of evidence and intent. We provide detailed

The information in global interest rate futures contracts

“…Abrantes‐Metz and Metz (2012), Abrantes‐Metz and Verstein (2013), and Abrantes‐Metz et al (2011) document that at the beginning of the 2008–2009 financial crisis, Libor displayed patterns that differed quite dramatically from the other interest rates. By the end of 2012, several large‐scale investigations were underway examining the alleged fraudulent manipulation of Libor settings.…”

A comparison of the information in the LIBOR and CMT term structures of interest rates

“…As the financial crisis unfolded, LIBOR appeared to delink from other benchmark rates (see Abrantes-Metz and Metz, 2012;Abrantes-Metz and Verstein, 2013;and Abrantes-Metz et al, 2011). By 2012, numerous investigations were underway and many lawsuits were filed alleging collusion in the setting of LIBOR rates (as well as other currencies' interbank offer rates) ensnaring almost all contributing banks.…”