SYDNEY – JPMorgan Chase & Co is pulling out of the panel that sets Australia's benchmark interbank lending rates, joining UBS in an exodus from regional rate setting panels in the wake of the Libor rate rigging scandal.
Banks around the world are reviewing their involvement in interest rate setting panels after regulators dished out billions of dollars in fines to banks including Barclays , UBS and Royal Bank of Scotland for manipulating the London Interbank Offered Rate (Libor).
The panel that sets Australia's bank bill swap (BBSW) reference rate, administered by the Australian Financial Markets Association (AFMA), will drop to 12 from 14 with the impending departure of JP Morgan.
"We have advised AFMA that we will be withdrawing," a JP Morgan spokesman told Reuters, adding that the move would take effect from the end of March.
JPMorgan gave no explanation for its exit from the BBSW rate setting panel.
UBS stopped participating in the BBSW panel in February. The Swiss bank's move followed the publication of a Commodities Futures Trading Commission report into its manipulation of Libor and its Japanese yen equivalent.
The CFTC findings, reported by Reuters in January, noted attempted manipulation by UBS traders in the BBSW, among others.
"Through its internal investigation, UBS identified evidence of similar misconduct involving submissions for at least the Hong Kong Interbank Offered Rate ("HIBOR"), the Singapore Interbank Offered Rate ("SIBOR"), the Singapore Swap Offer Rate ("SOR") and the Australian Bank Bill Swap Rate ("BBSW")," a footnote in the CFTC charge sheet read.
UBS, which agreed in December to pay regulators $1.5 billion for its role in the Libor scandal, said the withdrawal from BBSW was part of a global move to reduce its involvement on regional rate setting panels. A spokeswoman for Swiss bank declined to comment on its internal investigation relating to BBSW.
JPMorgan is also reviewing its involvement in other smaller regional interbank rate setting panels. There is no suggestion or evidence its traders were involved in efforts to manipulate the BBSW.
AFMA said it had not been provided any details of UBS's internal investigation into attempted manipulation of BBSW but remained confident in the system, which unlike Libor is based on traded prices rather than estimates.
"We have a range of checks and balances in place which would make it extremely difficult to manipulate (BBSW) through the submissions process," AFMA executive director David Lynch said.
Submissions to the BBSW process report the prevailing prices for a single type of clearly-defined and homogeneously-traded paper from four "prime banks" and observed by up to 14 panellists. The six middle submissions set the rate.
"AFMA's analysis has shown that included BBSW submissions fall within a 1 basis point spread 98 percent of the time," Lynch said.
AFMA is in talks with reserve members about joining the panel and can operate with less than 14 members, he said, declining to comment on the minimum number required.
UBS and JP Morgan are not alone in cutting their participation in rate-setting panels.
In January, Dutch lender Rabobank pulled out of the panel for Euribor, following a lead set by Citi which stopped contributing rates for the European money market benchmark last year.
In Asia, RBS has pulled out from interbank panels in Singapore, Hong Kong and Tokyo.