Ex-Barclays Official Says Interest-Rate Chats Created Conflicts

(Bloomberg) -- A former senior executive at Barclays Plc told a London court that conversations between bankers who set key interest rates and traders who acted on them created a “conflict” that contributed to a rate-rigging scandal.

Harry Harrison, who retired from Barclays last year, said that while the two groups were allowed to talk about their positions and get a feel for “market color,” they weren’t allowed to affect rate submissions.

Harrison was testifying at the trial of five traders from Barclays and Deutsche Bank AG who are accused of trying to manipulate the euro interbank offered rate, or Euribor, between 2005 and 2009. The investigation was part of a wider probe into benchmark rates, which are tied to trillions of dollars worth of derivatives and loans, the most famous of which was Libor, a counterpart of Euribor.

"With the benefit of hindsight that did create a conflict,” Harrison, who would often sit near one of the traders on trial, said Wednesday. “With the benefit of hindsight we would’ve been much more proscriptive about what could’ve been said."

Former Barclays traders Philippe Moryoussef, Colin Bermingham, Carlo Palombo and Sisse Bohart, and Achim Kraemer from Deutsche Bank all deny the charges.

Traders were encouraged to call Barclay’s cash desk, which was responsible for making submissions that helped determine the daily Euribor index, Harrison said. Euribor, like the better-known Libor benchmark, is used to value a number of derivatives and loans, and Harrison said he wouldn’t have traded on it if it wasn’t set independently.

Harrison moved from London to New York in 2003 to become the head of U.S. rates trading. He also took on responsibility for European rates trading in 2007, before becoming the global head the next year. While in New York, he would travel to London every couple of weeks and would sit at a desk near Palombo, he said.

Harrison said he was unaware of traders asking people to change their Euribor submissions.

"It would’ve been a matter for compliance," Harrison said. "The requests would’ve been inappropriate."

Another Deutsche Bank trader, Christian Bittar, has pleaded guilty in the case, while Moryoussef isn’t attending the trial and doesn’t have a lawyer at court.

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