Washington D.C. – On September 19, 2016, the U.S. Commodity Futures Trading Commission (CFTC) settled charges against JSC VTB Bank, headquartered in St. Petersburg, Russia, and its subsidiary, VTB Capital PLC, for engaging in manipulative trading practices. The banks were found to have executed fictitious and noncompetitive block trades in Russian Ruble/U.S. Dollar (RUB/USD) futures contracts on the Chicago Mercantile Exchange (CME).
The CFTC’s order mandates that VTB and VTB Capital jointly and severally pay a $5 million civil monetary penalty. The banks must also strengthen internal policies and procedures to prevent similar unlawful trading activity in the future, and conduct comprehensive training for employees on the legal and ethical requirements surrounding trading practices under the Commodity Exchange Act (CEA) and CFTC Regulations.
According to the CFTC, between December 2010 and June 2013, VTB and VTB Capital executed over 100 block trades in RUB/USD futures contracts, totaling approximately $36 billion in notional value. The agency found that VTB faced difficulties hedging its Ruble and U.S. Dollar cross-currency risk due to capital requirements imposed on over-the-counter (OTC) swap counterparties dealing with Russian entities.
The block trades were allegedly designed to transfer this risk to VTB Capital at advantageous prices, prices VTB could not secure from outside parties. VTB Capital would then hedge this risk through OTC swaps with international banks, effectively circumventing market limitations. The CFTC argues these trades were “fictitious sales” that misrepresented true prices to the CME, violating the CEA. Furthermore, the block trade prices failed to adhere to CME requirements and were deemed noncompetitive, violating CFTC regulations.
The CFTC acknowledged the cooperation of VTB and VTB Capital during the investigation and received assistance from the U.K. Financial Conduct Authority. The case was led by CFTC staff members Jo Mettenburg, Rebecca Jelinek, Stephen Turley, Jeff Le Riche, Rick Glaser, and Charles Marvine, with support from Mary Lutz, Elizabeth Padgett, David Bice, Wilburn E. Carlile, and Geoffrey Price.
Source: CFTC.gov
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