Libor manipulation 'way of life' – Tom Hayes

Tom Hayes tells court Libor panel banks' motivation to submit rates was to give them a commercial boost

Banks chose to participate in the Libor-setting process in order to reap commercial rewards from fixing it in their favour, said the former UBS and Citi trader standing trial for alleged Libor manipulation today (July 7).

Tom Hayes, taking the witness stand for the first time since the trial began, said setting Libor with an eye on the bank's commercial performance was a "way of life" at UBS when he joined, and that the same was true of other submitting banks.

"There's a reason banks wanted to be on the panel [that submits Libor]," said Hayes. "It allowed them to make commercially favourable submissions."

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By allowing bank Libor submitters to trade derivatives linked to the benchmark, there was a commercial incentive for submitters to set it in their favour, he said – improving the performance of the submitter's own book, which would benefit not only the submitter personally (via higher performance-related pay) but also the bank as a whole.

Hayes named both JP Morgan and Royal Bank of Scotland, where he had previously worked, as banks which also allowed their commercial interests to influence their Libor submissions.

However, Hayes argued this was not necessarily dishonest. He said there was no single value for Libor in a particular currency for a particular maturity because the process was "subjective". Therefore a range of possible, but still accurate, values existed.

With no particular rationale to choose between the values, Hayes said, banks would naturally select the most profitable option, which was the one to benefit their trading positions.

"For most panel banks that was the way that they decided their submission," he said.

Hayes is accused of eight counts of conspiracy to defraud, with the prosecution alleging that the 35-year-old was "ringmaster" in a network of brokers and other traders conspiring to manipulate the benchmark.

The court has so far seen evidence of emails, phone calls and messages between Hayes, his brokers and other bankers where he requests "high" or "low" Libor submissions.

"The vast majority of my requests were framed in a high or low manner," Hayes told the court today. "And the high or low is in the range."

He said as long as the submission was within the range it was a "legitimate answer" to the Libor submission question.

And Hayes said he never tried to hide actions as he considered them routine.

"Everything I did was with complete transparency to my employers, my managers, my managers' managers," he said.

"At no point did I do anything that my employers – going all the way up to the CEO at some points – were not aware of."

While the Libor benchmark was not regulated during the period of Hayes's alleged manipulation, the prosecution argues he acted dishonestly in order to benefit his trading book.

Hayes has pleaded not guilty to all charges. Although he had earlier agreed to admit his dishonesty in 2013 by signing a co-operation agreement with the UK's Serious Fraud Office (SFO), he subsequently withdrew from the agreement.

Today the court also heard that Hayes only agreed to the SFO's terms for fear he would be extradited to the US to face criminal charges.

"I didn't think about innocence, guilt or anything," he said. "My only consideration at the time was getting charged and avoiding the extradition."

The trial continues.