Washington, D.C. – Deutsche Bank Securities Inc. (DBSI) has been ordered to pay $70 million in penalties for attempting to manipulate the USD ISDAFIX benchmark, a key rate used in interest rate products, the Commodity Futures Trading Commission (CFTC) announced today.
The CFTC’s investigation revealed that between January 2007 and May 2012, DBSI traders engaged in manipulative practices to benefit the firm’s derivatives positions. These practices involved submitting false reports and attempting to influence the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a benchmark used for cash-settled options on interest rate swaps.
According to the CFTC order, DBSI employed two primary methods to manipulate the benchmark: “trading attempted manipulation” and “submission attempted manipulation.” Traders allegedly bid, offered, and executed transactions in interest rate products, including swap spreads and U.S. Treasuries, near the 11:00 a.m. Eastern Time fixing time. The goal was to affect rates on the electronic “19901 screen” and influence the final published USD ISDAFIX.
Evidence, including recorded calls and electronic communications, indicated traders discussed “pushing” or “moving” the fix to benefit DBSI’s positions. Traders communicated with a major interest rate swaps broker, informing them of desired swap levels or requesting that levels be moved up or down. In one instance, the swaps broker even asked DBSI traders how much “ammo” they had to move the screen.
“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 rate is published daily to indicate the prevailing mid-market rate for the fixed leg of a standard interest rate swap. The 11:00 a.m. rate is crucial for settling options on interest rate swaps and valuing other related products.
The $70 million civil monetary penalty is intended to address the attempted manipulation and underscores the CFTC’s commitment to maintaining the integrity of financial benchmarks.
Source: CFTC.gov
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