Firm Settles CFTC Charges for Market Manipulation

A CFTC-registered swap dealer firm settled CFTC charges for engaging in market manipulation of issuer swaps.

The CFTC found that the firm engaged in "manipulative and deceptive trading in interest rate swaps, basis swaps, and swap spreads in connection with interest rate swaps that [the firm] entered into with bond issuers (issuer swaps)." The CFTC said that the firm controlled pricing using false orders (spoofing) displayed on trading screens to increase firm profits at the expense of their counterparties. The CFTC also said that the firm recorded calls on mobile devices that were related to swap transactions, but failed to maintain them.

The CFTC determined that the firm violated Sections 4g ("Reporting and recordkeeping"), 4s(f)(1)(C), 4s(g)(1) and (3), and 4s(h)(1)(B) ("Registration and regulation of swap dealers and major swap participants") of the CEA, and CFTC Regulations 1.31 ("Regulatory records; retention and production"), 1.35 ("Records of commodity interest and related cash or forward transactions"), 23.201(a) ("Required records."), 23.202(a)(1) and (b)(1) ("Daily trading records"), 23.602(a) ("Diligent supervision"), and 166.3 ("Supervision").

To settle the charges, the firm agreed to (i) cease and desist from further violations, (ii) pay a civil monetary penalty of $45 million for the fraudulent trading and spoofing, and $30 million for "offline communications" and (iii) "extensive" remedial actions to improve supervisory and recordkeeping controls.

CFTC Commissioner Statements

Commissioner Christy Goldsmith Romero stated that the enforcement action protects market integrity by holding the firm accountable for market manipulation and its "pervasive use of unauthorized communications to evade regulatory oversight." Commissioner Goldsmith Romero stated that the firm had a culture of non-compliance and used deceptive swap trading tactics that harmed their clients while boosting their own profits.

Commissioner Kristin N. Johnson emphasized that the firm's "fraudulent and manipulative swaps trading and spoofing constitute severe betrayals of client trust," made worse by the fact that senior management was aware of the fraud but failed to remediate the behavior.

Commissioner Caroline D. Pham urged the CFTC to "adhere to administrative law and best practices for administrative agency policymaking" to "minimize the pitfalls of regulation by enforcement."

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