Ex trader dropped plan to recruit step brother in London Libor case

* Second day of Libor trial in London

* Ex trader Hayes says wrong to enlist step brother

* Ex BoE official Mallett got broker Libor emails (Adds Bank of England staff receiving Libor emails, BoE (Shenzhen: 000725.SZ - news) comment, details)

By Anjuli Davies

LONDON, May 27 (Reuters) - Tom Hayes, a former trader accused of conspiring to rig benchmark interest rates, abandoned an attempt to enlist his step brother into the alleged scam after deciding it was wrong to ask for his help, a London court heard on Wednesday.

On the second day of the world's first jury trial of an individual charged with benchmark rate-rigging offences, Southwark Crown Court was played a recording of a phone call between Hayes, a former UBS (NYSEArca: FBGX - news) and Citigroup trader, and former HSBC trader Peter O'Leary.

Hayes, 35, painted by prosecutors as a ringleader in a conspiracy involving around 25 staff at 10 of the world's largest banks and brokerages to rig rates for profit, asked O'Leary to persuade an HSBC colleague to help lower Libor rates.

"If you get to know him, would be a massive help to me," the court heard Hayes saying. "Got $1.0 million of risk ... If ... it (the Libor rate) moves by a basis point, for my fix that's worth 125k plus."

But Hayes, diagnosed with a mild form of Asperger's and who prosecutors said handed the names of alleged accomplices to investigators during 82 hours of interviews following his arrest in Dec (Shanghai: 600875.SS - news) . 2012, later decided against leaning on his family.

"I thought about it and I shouldn't have asked you, sorry mate," Hayes tells O'Leary, referred to in court on Wednesday as his step brother.

"It's wrong of me to ask you a favour."

Hayes's trial comes after a seven year, global inquiry that has led to banks and brokerages paying around $9 billion in fines, 21 people being charged. It also triggered an overhaul of how financial benchmarks such as Libor are policed.

Libor, the London interbank offered rate, is an average rate used as a benchmark to help price around $450 trillion of financial contracts from derivatives to home and other loans worldwide. A small movement in the average rate can translate into vast profits, or losses, for traders.

BROKERS EMAILED BOE'S MALLETT

Mukul Chawla, prosecuting for Britain's Serious Fraud Office (SFO), alleges Hayes was a ringleader motivated by greed who used staff at his bank, at other banks and interdealer brokers, middlemen who match buyers and sellers of bonds, currencies and swaps, to aid his alleged scam.

Some brokers aided the scheme when sending daily email suggestions of where they thought Libor rates should be to dozens of market participants, including a senior Bank of England (BoE) official Martin Mallett, Chawla alleged.

There is no suggestion that Mallett, a former BoE chief currency dealer who has been linked to a separate investigation into alleged manipulation of the vast foreign exchange market, was aware of any Libor malpractice.

Mallett was fired last year after an independent BoE review found he had failed to escalate concerns that traders at top banks could be rigging the $5 trillion-a-day currency market. He was not immediately available for comment.

The BoE said it would be inappropriate to comment on active criminal proceedings.

In a sign of how widespread alleged Libor manipulation was, Chawla also told the court that during the financial crisis, senior employees at UBS encouraged others to lower Libor rates to avoid triggering concerns about the bank's creditworthiness.

Gaspare La Sala, a former UBS asset liability manager, emailed colleagues in 2007: "It is hugely advisable to err on the low side with fixings for Libor to protect our franchise in these sensitive markets," the court heard. He did not respond to a Reuters request for comment via professional network LinkedIn.

Hayes, a former yen derivatives trader based in Tokyo, is charged with eight counts of conspiracy to defraud between 2006 and 2010, a criminal offence that carries a maximum jail sentence of 10 years. He has pleaded not guilty.

His defence team is expected to lay out its case next week in a trial scheduled to last between 10 and 12 weeks.

(Writing by Kirstin Ridley and Sinead Cruise; Editing by David Holmes and Jane Merriman)