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The fund, which manages about US$4.66 billion, claims banks “reduced the amount of interest owed,” resulting in investors paying more or receiving less than the amount generated through trading derivatives based on CDOR. The pension fund said it made US$1.2 billion in CDOR-based derivatives trades over the period.

Suppressed Rates

“Defendants conspired to suppress CDOR by making artificially lower submissions that did not reflect the true rate at which they were lending Canadian dollars in North America,” according to the Jan. 12 filing in U.S. District Court for the Southern District of New York. “Economic analyses show that defendants consistently made CDOR submissions well-below prevailing Canadian dollar money market rates, inexplicably offering to lend for less than what it cost them to borrow funds.”

The banks held on average more than US$1 trillion in CDOR-based swap contracts with U.S. counterparties during the period covered by the class-action suit, according to the filing.

Representatives for the Canadian Bankers Association, the Investment Industry Regulatory Organization of Canada and the Office of the Superintendent of Financial Institutions declined to comment.

CDOR is the interest rate benchmark used to set terms on short-term loans of less than a year. It’s set by Thomson Reuters each day based on submissions from the banks and used to determine rates on bankers’ acceptance contracts.