WASHINGTON, D.C. – Deutsche Bank Securities Inc. (DBSI) has been penalized $70 million by the Commodity Futures Trading Commission (CFTC) for attempting to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) benchmark, the CFTC announced February 1, 2018.
The CFTC’s order details a five-year scheme, spanning from January 2007 through May 2012, in which DBSI traders allegedly made false reports and engaged in manipulative trading practices to influence the USD ISDAFIX. The benchmark is a crucial component in pricing a wide range of interest rate products, including cash-settled options on interest rate swaps.
According to the CFTC, DBSI attempted to manipulate the benchmark by strategically bidding, offering, and executing transactions in interest rate products, including swap spreads and U.S. Treasuries, around the 11:00 a.m. Eastern Time fixing time. The goal was to influence rates on the electronic “19901 screen” and, subsequently, the final published USD ISDAFIX, benefiting the bank’s derivatives positions.
Evidence presented by the CFTC includes recorded calls and electronic communications where DBSI traders discussed “pushing” or “moving” the fix to achieve desired prices. Traders reportedly communicated their needs to the swaps broker, even requesting specific levels or movements in the benchmark rate. In one instance, a swaps broker inquired about the “ammo” available to DBSI traders to influence the screen at the fixing time.
“This action reflects the CFTC’s continued and vigilant commitment to protect those who rely on the integrity of critical financial benchmarks,” stated James McDonald, CFTC Director of Enforcement. “There is no room in our markets for manipulation—we will continue to work hard to stamp it out, wherever we find it.”
The USD ISDAFIX rates and spreads are published daily and intended to reflect the prevailing mid-market rate for fixed-leg interest rate swaps. The 11:00 a.m. rate is particularly important as it’s used for cash settlement of swaptions and valuation of other interest rate products. The CFTC found that DBSI employed both trading-based and submission-based attempts to manipulate the benchmark.
The $70 million civil monetary penalty levied against DBSI underscores the CFTC’s commitment to holding financial institutions accountable for benchmark manipulation and maintaining the integrity of the U.S. derivatives markets.
Source: CFTC.gov
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