212-373-3020 212-492-0020 [email protected] January 22, 2018 By Email and Federal Express Stephanie Avakian Steven Peikin Co-Directors of Enforcement Division of Enforcement U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: Market Manipulation of Qatari Currency and Securities Dear Securities and Exchange Commission: We write on behalf of Qatar Central Bank, to ask you to examine the extraordinary conduct of Banque Havilland, an international bank headquartered in Luxemburg, which devised a plan to engage in financial warfare against Qatar. Banque Havilland prepared a PowerPoint deck that describes a plan to “add confusion to the marketplace” for Qatar securities by engaging in wash sales and “crossing transaction arrangements,” in order to “move the price [of Qatari credit default swaps] sufficiently to make it newsworthy” and harmful to Qatar. We attach as Attachment A to this letter an article from the The Intercept, “Leaked Documents Expose Stunning Plan to Wage Financial War on Qatar—And Steal the World Cup,” which outlines the scheme. And it appears that the scheme has been followed. As part of a coordinated effort to support the illegal blockade of Qatar by Saudi Arabia, United Arab Emirates, Bahrain, and Egypt, several financial institutions have engaged in blatant, unlawful market manipulation by quoting fictitious buy/sell prices for Qatari Riyals (QAR) in order to devalue Qatar’s currency. We believe that they have engaged in bond transactions designed to create a false impression of a declining market, and thereby increase the costs for Qatar to insure the bonds. They have flooded Qatari banks with cash, and then coordinated to create a liquidity shortage by demanding withdrawals in USD all at the same time. They have caused damage to financial markets worldwide, including in the United States, where Qatari government bonds are traded over-the- counter. They should be halted immediately, and we ask that the Securities and Exchange Commission immediately investigate the issues presented. I. The Banque Havilland Scheme On November 9, 2017, the Intercept, an online news publication, published the PowerPoint presentation. The presentation had been found in the email inbox of the United Arab Emirates’ ambassador to the United States, Yousef Al Otaiba. It describes a plan to disrupt Qatari currency and credit markets, and enlist the help of third parties in an effort to destabilize the Qatari economy. Banque Havilland’s plan was to proceed in three stages. First, Banque Havilland proposed creating an offshore investment fund that would obscure any links to the United Arab Emirates or others, and that would hold Qatari bonds already owned by the UAE and any additional bonds the fund could purchase. This fund would also be used to buy large volumes of Qatar CDS that would increase in value as the value of the underlying securities declined. Second, Bank Havilland and its co-conspirators would engage in “crossing transactions,” i.e. wash sales, whereby another affiliated party sells the same bond holdings back to the original seller and thereby creates additional downward pressure [on bond prices].” These “crossing transactions” would artificially increase transaction volume, drive down prices, “add to confusion in the marketplace,” and attract the attention of investors—all with the goal of sowing panic and prompting further sell-offs of Qatari securities. This in turn would also increase the value of the CDS owned by the perpetrators. Banque Havilland noted that the falling debt prices and rising value of the CDS would create a feed-back loop, and introduce downward pressure on Qatar’s currency as well. 2 Third, the conspirators planned to put further downward pressure on Qatari bond prices and currency by “fir[ing] up the PR machine to remind people that there is a problem with Qatar.” The Banque Havilland plan specifically calls for blockading countries to coordinate public statements about Qatar’s unstable economy. The plan anticipates that Qatar’s economy would be so compromised, it would be unable to host the 2022 World Cup, leaving an opening for the blockading countries to make a bid to host the games in Qatar’s place. As the presentation summed up its goal: “Control the yield curve, decide the future.” The trading activity observed in Qatari securities in the second half of 2017 has been consistent with the Banque Havilland proposal. Bond yields are up over 4.6% from January of 2017. And CDS spreads have jumped dramatically, rising from 59.025 bps on June 2 to a peak of 124.32 bps on July 7 – the highest level since the blockade began. II. Manipulation of the Market for Qatari Currency The Banque Havilland plan also coincides with extremely suspicious movements in the currency markets that are only explained by attempts to manipulate the markets. For over a decade, the QAR has been pegged at a rate of 3.64 QAR to the USD. The Qatar Central Bank has always stood by that peg, and is committed to exchanging QAR at that rate. There has been no material or sustained fluctuation in the rate for over a decade until the manufactured activity following the illegal blockade. Beginning around the time of the illegal blockade in June 2017, several financial institutions began posting to Bloomberg offers to buy/sell the QAR in significantly increased volumes of quotations, and at substantially devalued rates, as high 3.92 QAR to the USD in November 2017. For example, here is a chart showing all the buy/sell quotes for the QAR/USD posted by a particular bank on May 7, 2017, prior to the blockade. There is a single quote, at 3.64. 3 Here, by contrast, are the quotes from that same bank for the QAR/USD on Friday, June 23, 2017. Markets in the region are closed on Fridays, and, moreover, this Friday, June 23 was the start of the Eid holiday, so one would expect little currency trading activity. However, as you can see, the quotes are provided every second, and at rates of 3.72 to 3.75 QAR to the USD. 4 Through the sheer volume of quotations (in both the spot and forward markets) these banks hoped to position themselves to represent a consensus “market” for QAR trading other than through the Qatar Central Bank (i.e. “offshore” trading). They succeeded as Bloomberg compiled the quotes from this “established” consensus market of banks, the “offshore” QAR rate increased dramatically and reinforced the manufactured narrative that Qatar’s currency was increasingly volatile and its economy was too unstable for investment. But the quotations were bogus. There is evidence that while the quotes were being provided with great frequency, as demonstrated above, the banks providing the quotes were unable to transact at the quoted prices. These phantom quotes have had a destabilizing effect on Qatari currency. Here is a chart from showing the QAR/USD exchange rate for the last decade, which illustrates the stability of the rate for years, compared with the extreme volatility of the exchange rate during the last few months: It is particularly noteworthy that efforts to manipulate the QAR exchange rate increased significantly during the Eid holiday, which began on June 23 and continued until June 27 and until 1 July in Qatar and Saudi Arabia. During that period, financial markets, banks and businesses throughout the region were closed, so there was little trading at the on-shore rate. Yet, a frantic burst of phantom quoting activity and fictitious trading resulted in a depreciation of Bloomberg’s “offshore” QAR rate from 3.6483 on June 5 to an all-time low (at that time) of 3.7838 on June 26. In reality, we suspect that the overwhelming majority of the trades quoted on Bloomberg did not take place, especially given the Eid holiday. But the quotes reinforced a narrative, manufactured by Banque Havilland and its co-conspirators, designed to stoke panic and fear for investors and residents in Qatar that the QAR was highly unstable and weakening rapidly. As the plotters had hoped, regional and international media outlets reported the manufactured volatility as legitimate, intensifying concerns about Qatar’s economy and 5 ATTACHMENT A 1/22/2018 Leaked Documents Expose Stunning Plan to Wage Financial War on Qatar — and Steal the World Cup LEAKED DOCUMENTS EXPOSE STUNNING PLAN TO WAGE FINANCIAL WAR ON QATAR — AND STEAL THE WORLD CUP Ryan Grim, Ben Walsh November 9 2017, 7:21 a.m. Photo: Max Faulkner/The Fort Worth Star-Telegram/AP LEIA EM PORTUGUÊS ⟶ A plan for the United Arab Emirates to wage financial war against its Gulf rival Qatar was found in the task folder of an email account https://theintercept.com/2017/11/09/uae-qatar-oitaba-rowland-banque-havilland-world-cup/ 1/22 1/22/2018 Leaked Documents Expose Stunning Plan to Wage Financial War on Qatar — and Steal the World Cup belonging to UAE Ambassador to the United States Yousef al-Otaiba and subsequently obtained by The Intercept. The economic warfare involved an attack on Qatar’s currency using bond and derivatives manipulation. The plan, laid out in a slide deck provided to The Intercept through the group Global Leaks, was aimed at tanking Qatar’s economy, according to documents drawn up by a bank outlining the strategy. The outline, prepared by Banque Havilland, a private Luxembourg-based bank owned by the family of controversial British financier David Rowland, laid out a scheme to drive down the value of Qatar’s bonds and increase the cost of insuring them, with the ultimate goal of creating a currency crisis that would drain the country’s cash reserves.