According to this article, the major complaint had been filed by a number of traders and hedge funds which had engaged in futures contracts which were traded in the as well as those that paid out based on Libor. The contracts were a common criterion for protecting against various spikes of interest rates. However, they were not paid off as initially agreed because Libor was artificially lowered. This element is in violation of the section 2 (rules of practice) part 4 (c) in which professionals are not expected to accept or solicit financial or any other form of valuable consideration, indirectly or directly, from an outside agent considering the connection with the nature of work that they are responsible. The article maintains that ‘Securities lawyers say the lawsuits will not be easy to win because the investors will first have to prove that the banks successfully pushed down Libor for an extended period during the crisis, and then will have to demonstrate that it was down on the day when the bank calculated particular payments’ (Popper .
Further, the efforts of ethically calculating the potential losses were then complicated by the ideology that Libor was used for the purposes of determining the overall costs of a wide number of financial products across the world (Popper . This way, the artificial pushing down of Libor on any day would help all persons involved in various types of contracts while at the same time hurting the people involved in subsequent ones. This violates the ethical code section 2 part 5 (b) which defines that professionals shall in any way receive, give, solicit, or offer, either indirectly or directly, any form of contribution towards the influencing of the contract award.
The third ethical misdeed is the banks’ submission of artificially low Libor rates in the period of the 2008 financial crisis. This article observes that Barclays admits it led cities and states into receiving relatively smaller payments based on the financial contracts that they entered with such banks. Even prior the existing controversy, a number of municipal activists maintained that banks continued to take advantage of this financial inexperience for various municipal officials to make tremendous sales for billions of dollars in interest rate swaps (Popper . Municipal finance experts say that due to the particular approach that states and cities use in borrowing money, they become especially liable to losing out on various swaps for drops in Libor.
As a way of hedging costs on the extensive sale of interest rate bonds that are variable which rather rises and falls with the variations within the market, local governments purchased interest rate swaps that exchange variable interest rates for fixed interest rates. In all swap deals, the moment that interest rate rise, the seller of the swap continues to pay the local government an increased bond cost. Similarly, while the interest rates decrease, the seller of the swap saves and continues to pay the local government decreased bond costs (Popper . The mechanism of interest rate swaps generally works well. However, the artificial decrease on the payments to various local governments will mean that the bond costs remained at the actual market rates. With reference to section 3 part 9 (e) the professionals need to continue improving their professional development across the term of their careers. They are also expected to remain current with the specialty fields through being involved in professional practices, reading technical literature and attending professional seminars.
Works Cited:
Popper : Rate Scandal Stirs Scramble for Damages. 2012. Pp 2. Retrieved on 2nd December 2012 from http://dealbook.nytimes.com/2012/07/10/libor-rate-rigging-scandal-sets-off-legal-fights-for-restitution/
