CFTC orders the Royal Bank of Scotland to pay $85 million for attempted manipulation of U.S. dollar ISDAFIX benchmark swap rates

The U.S. Commodity Futures Trading Commission (CFTC) issued an Order filing and settling charges against The Royal Bank of Scotland plc (RBS) for attempted manipulation of the ISDAFIX benchmark and requiring RBS to pay an $85 million civil monetary penalty. The CFTC Order finds that over a five-year period, beginning in January 2007 and continuing through March 2012 (relevant period), RBS, through the acts of multiple traders, attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark reference in a range of interest rate products. RBS engaged in the unlawful conduct in order to benefit certain derivatives positions it held that were priced or valued off of the USD ISDAFIX benchmark.

RBS will be required to take specified steps to implement and strengthen its internal controls and procedures, including measures to detect and deter trading potentially intended to manipulate swap rates such as USD ISDAFIX and to ensure the integrity of interest-rate swap benchmarks.

The Order specifically finds that during the relevant period, RBS, through certain of its traders in Stamford, Connecticut, bid, offered, and executed transactions in targeted interest rate products, including both swap spreads and U.S. Treasuries, at the critical 11:00 a.m. fixing time with the intent to affect the reference rates and spreads captured by a leading interest rates swaps broker (Swaps Broker) in the “print” sent to submitting banks, and thereby to affect the published USD ISDAFIX. According to the Order, RBS attempted to manipulate USD ISDAFIX through its trading at the 11:00 a.m. fixing in order to benefit cash-settled swaptions held by RBS that were priced or valued against the USD ISDAFIX benchmark.

As found in the Order, RBS traders bid, offered, and executed transactions of swap spreads and U.S. Treasuries contracts at the critical 11:00 a.m. fixing time in order to affect the “print,” i.e., the reference rates captured at 11:00 a.m. and sent to submitting banks, and thereby to affect the published USD ISDAFIX. RBS traders understood that by using swap spreads and/or treasury trading it was possible to move the USD ISDAFIX rate. As one RBS employee explained, “the way to move isdafix is to hit or lift spreads on the screen, and do the opposite in tsy, b/c that is how the rate is derived [sic.].” According to the Order, as captured in emails and audio recordings, RBS traders often discussed their intent to move USD ISDAFIX to benefit their positions. RBS traders would often tell their brokers at Swaps Broker the intent of their trading at 11:00 a.m., for example telling their swap broker, “I’m going to have to get 10s higher and 7s lower.”

In accepting RBS’s offer of settlement, the CFTC recognizes RBS’s cooperation during the Division of Enforcement’s investigation of this matter, which helped the Division efficiently and effectively undertake its investigation.


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