U.S. investigators have uncovered evidence that banks reaped millions of dollars in trading profits at the expense of companies and pension funds by manipulating a benchmark for interest-rate derivatives, Bloomberg reported.


Recorded telephone calls and emails reviewed by the Commodity Futures Trading Commission show that traders at Wall Street banks instructed ICAP PLC brokers in Jersey City, N.J., to buy or sell as many interest-rate swaps as necessary to move the benchmark rate, known as ISDAfix, to a predetermined level, according to a person with knowledge of the matter.


By rigging the measure, the banks stood to profit on separate derivatives trades they had with clients who were seeking to hedge against moves in interest rates. Banks sought to change the value of the swaps because the ISDAfix rate sets prices for the other derivatives, which are used by firms ranging from the California Public Employees' Retirement System to Pacific Investment Management Co., said the person, who asked not to be identified because the details aren't public, Bloomberg said.


That may run afoul of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which bars traders from intentionally interfering with the "orderly execution" of transactions that determine settlement prices. Read more.