The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: LIBOR

  • From Vol. 4 No.15 (May 6, 2011)

    European Asset Manager Seeks Recovery from LIBOR Panel Banks for Hedge Funds That Lost Income on LIBOR-Based Derivative Contracts

    In a putative class action complaint filed in the U.S. District Court for the Southern District of New York on April 15, 2011, a European asset manager, FTC Capital GMBH, and two of its futures funds, FTC Futures Fund SICAV and FTC Futures Fund PCC Ltd., accused twelve banks of colluding to manipulate the London interbank offered rate (LIBOR) from 2006 to June 2009.  LIBOR generally is the published average of rates at which selected banks (including the defendants) lend to one another in the London wholesale money market.  LIBOR is a global benchmark lenders use to set short-term and adjustable interest rates for almost $350 trillion in financial contracts.  These contracts include those heavily utilized by hedge funds, such as “fixed income futures, options, swaps and other derivative products” traded on the Chicago Mercantile Exchange (CME) and over-the-counter (OTC).  If understated, as alleged in the complaint, LIBOR provides a discount to borrowers, and can cause significant losses to hedge funds that utilize LIBOR-related financial instruments.  This article explains what LIBOR is and how it is used in derivatives contracts, summarizes the material allegations in the complaint and discusses relevant reports in the business press about potential manipulation of LIBOR.

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