The U.S. Commodity Futures Trading Commission (CFTC) has settled charges against The Royal Bank of Scotland plc (RBS) for attempting to manipulate the ISDAFIX benchmark, requiring the bank to pay an $85 million civil monetary penalty. The investigation revealed that between January 2007 and March 2012, RBS traders engaged in a scheme to influence the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a key benchmark for interest rate products.
According to the CFTC order, RBS attempted to manipulate the USD ISDAFIX to benefit its derivatives positions, which were priced using the benchmark rate. Traders in Stamford, Connecticut, allegedly bid, offered, and executed transactions in interest rate products – including swap spreads and U.S. Treasuries – specifically at the 11:00 a.m. fixing time. Their intent was to impact the rates captured by a leading swaps broker and, consequently, the published USD ISDAFIX.
The bank’s actions centered around manipulating the 11:00 a.m. fixing to positively influence cash-settled swaptions held by RBS, which were valued against the USD ISDAFIX benchmark. ISDAFIX rates are crucial benchmarks for interest rate swaps and related derivatives, reflecting the prevailing market rate for fixed-leg swaps in various currencies. The 11:00 a.m. USD ISDAFIX rate was particularly important for settling options on interest rate swaps and valuing other related products, and even played a role in debt issuance pricing.
The USD ISDAFIX was determined daily, beginning at 11:00 a.m. Eastern Time, with a leading interest rate swaps broker recording rates and spreads. This “snapshot” or “fix” was then disseminated to a panel of banks. The CFTC’s Director of Enforcement, Aitan Goelman, emphasized the seriousness of benchmark manipulation, noting this was the agency’s fourth enforcement action related to ISDAFIX and follows previous cases concerning LIBOR and foreign exchange benchmarks.
In addition to the $85 million penalty, RBS is required to implement and strengthen its internal controls and procedures to detect and deter manipulative trading practices and ensure the integrity of interest rate swap benchmarks. This case underscores the CFTC’s commitment to maintaining the fairness and reliability of financial benchmarks.
Source: CFTC.gov
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