Hayes promised fees to brokers through "wash" trades, court hears

LONDON, June 12 (Reuters) - Tom Hayes, the former star trader on trial on alleged Libor-rigging charges, promised fees to brokers using so-called “wash” trades and enlisted the help of other major banks to execute them, according to evidence presented in a London court on Friday.

In exchange for their help in allegedly assisting to distort benchmark interest rates, Hayes promised to reward brokers by using “wash” trades, where banks make fake trades to pay brokers through commissions, the Southwark Crown Court heard.

“I will do a humongous trade with you ... $50,000 trade. I need you to keep it low ... I will pay you $50,000, $100,000, whatever you want. If you can just call in some favours ... if you’ve got a mate who will do a flat switch,” Hayes told one broker in September 2008.

Brokers did not contribute to the Libor-setting process but regulators have called into question the role of individual brokers as conduits to aid manipulation by traders working at investment banks.

Hayes, a former yen derivatives trader, has pleaded not guilty to eight counts of conspiracy to defraud. His lawyers will set out a detailed defence later in the trial, scheduled to last into August.

The London interbank offered rate, or Libor, is used to price an estimated $450 trillion of financial contracts worldwide. It is calculated through an “honour system” in which a panel of banks submit their estimated costs of borrowing from each other in different currencies.

Calls and electronic messages shown to the jury illustrate how Hayes and individual brokers contacted traders at other major banks, including RBS, Merrill Lynch and JPMorgan, to match trades that Hayes would put through the brokers in order to cancel each other out, earning the brokers commissions in the process, the court heard.

“Can you go in and out of a switch?” one broker asked a trader at Merrill Lynch in a call played to the jury.

“It’s broker exercise ... he basically wants to pay me a broke ... it’s a bit dodgy.”

In one such “wash” trade, Hayes ended up paying one brokerage a total of 35,610 pounds ($55,388) in fees for a series of trades that cancelled each other out, the court heard.

“It works both ways.. We’ve got a nice little niche here,” Hayes told one broker in a call played to the jury.

“If you help me, I’ll help you.” ($1 = 0.6429 pounds) (Reporting by Anjuli Davies; editing by Carolyn Cohn and Susan Thomas)