Report: Traders May Be Front Running Fannie, Freddie In Swaps Market

Posted by Patrick Barnard on January 14, 2014 No Comments
Categories : Required Reading

The Federal Bureau of Investigation (FBI) is reportedly investigating whether Wall Street traders are front running government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in the interest rate swaps market.

According to a Reuters report, citing an FBI intelligence bulletin, some traders may have used ‘unsophisticated tradecraft’ such as hand signals and special ringtones on their mobile phones as they conspired to rig rates on large orders submitted by Fannie and Freddie.

The bulletin, however, doesn't name any traders or banks suspected of activity, Reuters reports.

The activity reportedly came to light after a former high-level employee at a U.S. bank and an employee at a Canadian Bank tipped off authorities. The former employee at the U.S. bank reportedly told investigators the front running had resulted in profits of $50 million to $100 million for the bank.

As per the Reuters report, the FBI has ‘medium confidence’ in the information, which the bulletin describes as coming from ‘multiple corroborating sources with first-hand access.’

However, the agency has ‘low confidence’ the suspected traders can be prosecuted, as the trades are seemingly legitimate.

‘GSEs frequently submit large interest-rate swap trades, making them easy targets for front running and lucrative targets for market manipulation,’ the FBI bulletin says, as per the report.

For more, check out the Reuters report.

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