CFTC Imposes Fines for Attempted Manipulation and False Reporting of Currency and Swap Rate Benchmarks

The CFTC issued two orders against a bank and its affiliates for the alleged manipulation and false reporting of various benchmarks related to global currency and interest rates.

The CFTC found that the bank attempted to manipulate the U.S. Dollar ISDA Fix ("USD ISDAFIX") beginning in January 2007 and continuing through January 2012. On certain days when the bank had a trading position that settled or reset against the USD ISDAFIX, the CFTC alleged, the bank attempted to manipulate USD ISDAFIX by making false submissions as a panel bank. These false submissions were an attempt to skew rates and spreads in a direction that could have moved the USD ISDAFIX setting to benefit the bank's trading positions. Additionally, the CFTC found that the bank attempted to manipulate USD ISDAFIX by bidding, offering and executing transactions in targeted interest rate products. The CFTC concluded that the bank manipulated its submissions in order to benefit its own derivatives trading positions at the expense of its counterparties.

In a separate order, the bank and one of its Japanese affiliates were charged with attempting to manipulate Yen LIBOR and the Euroyen Tokyo Interbank Offered Rate, also known as TIBOR, and with falsely reporting Euroyen TIBOR in an effort to benefit their own derivatives trading positions. Another Japanese affiliate was charged with the false reporting of U.S. Dollar LIBOR at specific times in order to avoid negative media attention and protect its reputation during the financial crisis. The bank engaged in this false reporting in order to avoid being required to pay above LIBOR when securing its funding. When settling with the CFTC for this order, the bank neither admitted nor denied the allegations.

In its commentary regarding the charges, the CFTC stated that regardless of the means employed, the goal was the same: to move the index in a direction that favored the bank on specific trading positions. The CFTC also stated that the bank's submissions did not reflect an "honest view" of the true costs of entering into the swaps at issue with respect to particular maturities. Additionally, the CFTC reported that it now has imposed over $5 billion in penalties for actions involving the manipulation of global benchmark rates.