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CFTC hits Barclays with over half a Billion in fines
A few people complained that earlier fines for currency price manipulations by makor banks were just part of the cost of doing business. If so, business costs as Barclays just went up $515 million dollars.
They got fined $115 million for attempted manipulation of and false reporting of U.S. Dollar ISDAFIX benchmark swap rates and another $400 million for attempted manipulation and false Reporting of foreign exchange benchmark rates.
These fines push the CFTC's total fines for these kinds of abuses to about four and a half Billion dollars.
Here are the two enforcement actions...
May 20, 2015
CFTC Orders Barclays to Pay $115 Million Penalty for Attempted Manipulation of and False Reporting of U.S. Dollar ISDAFIX Benchmark Swap Rates
CFTC Also Took Action Today Against Barclays for Abuses of Foreign Exchange Benchmark Rates
Barclays Has Now Been Subject to Three CFTC Enforcement Actions for Benchmark Rate Abuses (ISDAFIX, FX, and LIBOR) Imposing a Total of $715 Million in Penalties and Requiring Extensive Remediation
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) issued an Order today filing and settling charges against Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc. (collectively, Barclays or the Bank). The Order finds that, beginning at least as early as January 2007 and continuing through June 2012 (the Relevant Period), Barclays attempted on many occasions to manipulate and made false reports concerning the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark for interest rate products. This is the first enforcement action addressing abuses of this benchmark.
The CFTC Order requires Barclays to pay a $115 million civil monetary penalty, cease and desist from further violations as charged, and take specified remedial steps, including measures to detect and deter trading intended to manipulate swap rates such as USD ISDAFIX, to ensure the integrity and reliability of the Bank’s benchmark submissions, and to improve related internal controls.
“It is often said in CFTC precedent that ‘the methods and techniques of manipulation are limited only by the ingenuity of man.’ Here, the varied and sophisticated means employed by Barclays traders in their attempts to manipulate USD ISDAFIX are exposed,” said Aitan Goelman, the CFTC’s Director of Enforcement. “As the CFTC has repeatedly shown, when banks like Barclays try to tip the scales in their favor by attempting to manipulate a benchmark on which their customers and the markets rely, we will be relentless in investigating and taking action to restore and protect market integrity.”
Barclays, through its traders, bid, offered, and executed interest rate swap spread transactions in a manner deliberately designed – in timing, price, and other respects – to influence the published USD ISDAFIX to benefit the Bank in its derivatives positions, according to the Order. In addition, Barclays, through its employees making the Bank’s USD ISDAFIX submissions, also attempted to manipulate and made false reports concerning USD ISDAFIX by skewing the Bank’s submissions in order to benefit the Bank at the expense of its derivatives counterparties and customers.
USD ISDAFIX
ISDAFIX rates and spreads are among the leading benchmarks for interest rate swaps and related derivatives, indicating the prevailing, daily market rate for the fixed leg of a standard fixed-for-floating interest rate swap in various currencies. USD ISDAFIX rates and spreads are published daily (now under a different name and methodology) for various maturities of U.S. Dollar-denominated swaps. The USD ISDAFIX rate is used for valuing cash settlement of options on interest rate swaps, or swaptions, and as a valuation tool for a wide range of products across financial markets. For example, during the Relevant Period, USD ISDAFIX was used in settlement of exchange-traded interest rate swap futures contracts and as a component in the calculation of various proprietary interest rate indices and structured products. Many parties, including pension funds and local and state governments in the U.S., rely on such instruments based on USD ISDAFIX to hedge against changes in interest rates.
During the Relevant Period, the USD ISDAFIX was set each day in a process that began at 11:00 a.m. Eastern Time with the recording of swap rates and spreads from a U.S.-based unit of a leading interest rate swaps broking firm, which disseminated the rates and spreads captured in this “snapshot” or “print” – as it was referred to by traders and brokers – to a panel of banks including Barclays. The banks then made submissions to indicate where they would each bid or offer interest rate swaps to a dealer of good credit.
Barclays’ Unlawful Conduct to Benefit Derivatives Positions
As the Order sets forth, a Barclays interest rate options trader once referred in an email to the risk that “sometimes isdafix is manipulated.” In fact, as the Order finds, Barclays, through that options trader and others at the Bank, on many occasions attempted to manipulate USD ISDAFIX through its trading at the 11:00 a.m. fixing and by skewing its submissions.
First, Barclays traders bid, offered, and executed transactions in certain interest rate products, primarily swap spreads, at the critical 11:00 a.m. fixing time to affect the reference rates captured in the snapshot sent to submitting banks, and thereby to affect the published USD ISDAFIX. As captured in emails and audio recordings, when Barclays had derivatives positions settling or pricing against USD ISDAFIX, its traders discussed their intent to move USD ISDAFIX in whichever direction benefitted their positions. Barclays traders described the notional amounts they were willing to spend to influence the USD ISDAFIX as “ammo” or as amounts the traders could “burn,” “waste,” or “use” to “get the print” or “affect” the “fix.”
Second, Barclays traders also attempted to manipulate USD ISDAFIX by making false USD ISDAFIX submissions. As the Order finds, Barclays’ submissions were false, misleading, or knowingly inaccurate because they did not report where Barclays would itself bid and offer swaps absent a desire to manipulate the USD ISDAFIX, but rather reflected prices that were more favorable to the Bank on specific positions.
The Order describes numerous examples of each of these strategies for attempted manipulation and false reporting by Barclays traders during the Relevant Period.
The Order recognizes Barclays’ significant cooperation with the CFTC during the investigation of this matter. The Order also notes that the civil monetary penalty imposed on Barclays reflects the Bank’s early resolution of this matter.
The CFTC thanks and acknowledges the assistance of the United Kingdom’s Financial Conduct Authority and the Newark, New Jersey Field Office of the Federal Bureau of Investigation.
CFTC Division of Enforcement staff members responsible for this case are Candice Aloisi, Trevor Kokal, David W. MacGregor, David C. Newman, Douglas K. Yatter, Lenel Hickson, Jr., Manal M. Sultan, and Gretchen L. Lowe.
The following staff members also assisted in this case: Jordon Grimm, Thomas J. Nolan, Mark A. Picard, Chad E. Silverman, Judith M. Slowly, K. Brent Tomer, and James G. Wheaton.
* * * * *
With Today’s Actions, the CFTC Has Imposed Over $4.6 Billion in Penalties in 15 Actions against Banks and Brokers to Address FX, LIBOR, and ISDAFIX Benchmark Abuses
The CFTC has imposed penalties of over $4.6 billion in its investigation of manipulation of global benchmark rates. Of this, over $1.8 billion in penalties has been imposed on six banks for misconduct relating to foreign exchange benchmarks, while over $2.7 billion has been imposed for misconduct relating to ISDAFIX, LIBOR, Euribor, and other interest rate benchmarks.
May 20, 2015
Barclays to Pay $400 Million Penalty to Settle CFTC Charges of Attempted Manipulation and False Reporting of Foreign Exchange Benchmark Rates
CFTC Also Took Action Today Against Barclays and its Affiliates for Attempted Manipulation and False Reporting of the ISDAFIX Benchmark, an Interest Rate Benchmark — the First Enforcement Action Addressing Abuse of ISDAFIX
Barclays Has Now Been Subject to Three CFTC Enforcement Actions for Benchmark Rate Abuses (ISDAFIX, FX, and LIBOR) Imposing a Total of $715 Million in Penalties and Requiring Extensive Remediation
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Barclays Bank PLC (Barclays) for attempted manipulation, false reporting, and aiding and abetting other banks’ attempts to manipulate, global foreign exchange (FX) benchmark rates to benefit the positions of certain traders.
This Order requires Barclays to pay a civil monetary penalty of $400 million, cease and desist from further violations, and take specified steps to implement and strengthen its internal controls and procedures, including the supervision of its FX traders, to ensure the integrity of its participation in the fixing of foreign exchange benchmark rates and internal and external communications by traders. The Order notes that the $400 million civil monetary penalty reflects in part that Barclays did not settle at an earlier stage of the investigation.
On November 11, 2014, the CFTC imposed $1.475 billion in civil monetary penalties against five banks for similar misconduct (see CFTC Press Release 7056-14): In re Citibank, N.A., CFTC Docket No. 15-03) ($310 Million penalty); In re JPMorgan Chase Bank, N.A., CFTC Docket No. 15-04) ($310 Million penalty); In re The Royal Bank of Scotland plc, CFTC Docket No. 15-05) ($290 Million penalty); In re UBS AG, CFTC Docket No. 15-06) ($290 Million penalty); In re HSBC Bank plc, CFTC Docket No. 15-07) ($275 Million penalty).
Aitan Goelman, the CFTC’s Director of Enforcement, stated: “Ensuring the integrity of our markets and the public’s faith in that integrity is a core mission of the CFTC. There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely-used benchmark in furtherance of their own narrow interests. The CFTC will continue to bring these cases until the public can be confident in the integrity of benchmark rates.”
According to the Order, one of the primary benchmarks that Barclays FX traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates). The WM/R Rates, the most widely referenced FX benchmark rates in the United States and globally, are used to establish the relative values of different currencies, which reflect the rates at which one currency is exchanged for another currency. Another FX benchmark rate that a Barclays FX trader attempted to manipulate is the Russian Ruble/U.S. Dollar Chicago Mercantile Exchange (CME)/EMTA, Inc. benchmark rate (CME/EMTA Rate) that is based on indicative bids and offers submitted by banks to the CME, who calculates and issues the CME/EMTA Rate as well as publishes the submitted bids and offers of each participant.
FX benchmark rates, such as the WM/R Rates and the CME/EMTA Rate, are used for pricing of cross-currency swaps, foreign exchange swaps, spot transactions, forwards, options, futures and other financial derivative instruments. For example, the CME/EMTA Rate is the primary rate source for settling Russian Ruble non-deliverable forward transactions and the price used for calculation of the CME Russian Ruble futures final settlement price at termination. Accordingly, the integrity of the WM/R Rates and other FX benchmarks is critical to the integrity of the markets in the United States and around the world.
The Order finds that certain FX traders at Barclays and other banks coordinated their trading or indicative rate submissions to attempt to manipulate certain FX benchmark rates, including the WM/R 4 p.m. London fix and the CME/EMTA Rate, to their benefit. These FX traders at Barclays and the other banks used private chat rooms to communicate and plan their attempts to manipulate the FX benchmark rates. In these chat rooms, FX traders at the Banks disclosed confidential customer order information and trading positions, altered trading positions or CME/EMTA submissions to accommodate the interests of the collective group, and agreed on trading strategies as part of an effort by the group to attempt to manipulate certain FX benchmark rates. These chat rooms were sometimes exclusive and invitation only.
The Order also finds that Barclays failed to adequately assess the risks associated with its FX traders participating in the fixing of certain FX benchmark rates and lacked adequate internal controls in order to prevent improper communications by traders. In addition, Barclays lacked sufficient policies, procedures and training specifically governing participation in trading and submission of indicative rates around the FX benchmarks rates; and Barclays had inadequate policies pertaining to, or insufficient oversight of, its FX traders’ use of chat rooms or other electronic messaging.
Some of this conduct occurred during the same period that the CFTC and other regulators were investigating attempts by certain banks, including Barclays, to manipulate the London Interbank Offered Rate (LIBOR) and other interest rate benchmarks. The Commission took enforcement action against Barclays in connection with LIBOR in June 2012. Today, in addition to the charges related to Barclays’ misconduct in FX benchmark rates, the Commission took enforcement action against Barclays and its affiliates on the same charges relating to abuses of the ISDAFIX benchmark. (See information below.)
The Order recognizes the significant cooperation of Barclays during the CFTC’s Division of Enforcement’s investigation of this matter.
The CFTC thanks and acknowledges the invaluable assistance of the U.S. Department of Justice, the Federal Bureau of Investigation, the Board of Governors of the Federal Reserve System, the New York Department of Financial Services, and the U.K. Financial Conduct Authority.
CFTC Division of Enforcement staff members responsible for these cases are Robert Howell, Melissa Glasbrenner, Heather Johnson, Jordon Grimm, David Chu, Elizabeth Streit, and Gretchen Lowe.
* * * * *
With Today’s Action, the CFTC Has Imposed over $4.4 Billion in Penalties in 15 Actions against Banks and Brokers to Address FX, LIBOR, and ISDAFIX Benchmark Abuses
With this Order, the CFTC has now imposed penalties of $1.875 billion on six banks for misconduct relating to foreign exchange benchmarks. In addition, for similar misconduct relating to LIBOR, Euribor, ISDAFIX, and other interest rate benchmark abuses the CFTC has imposed penalties of over $2.6 billion, for a total of over $4.6 billion in penalties in the CFTC’s enforcement program focused on ensuring the integrity of global financial benchmarks.
Original CFTC Press Releases...
Barclays to Pay $400 Million Penalty to Settle CFTC Charges of Attempted Manipulation and False Reporting of Foreign Exchange Benchmark Rates
CFTC Orders Barclays to Pay $115 Million Penalty for Attempted Manipulation of and False Reporting of U.S. Dollar ISDAFIX Benchmark Swap Rates
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