May 20, 2015
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.
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.
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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.
Foreign Exchange Benchmark Cases
• In re Barclays Bank PLC, CFTC Docket No. 15-24 (May 20, 2015) ($400 million penalty)
• In re Citibank, N.A., CFTC Docket No. 15-03 (November 11, 2014) ($310 million penalty) (CFTC Press Release 7056-14)
• In re JPMorgan Chase Bank, N.A., CFTC Docket No. 15-04 (November 11, 2014) ($310 million penalty) (CFTC Press Release 7056-14)
• In re The Royal Bank of Scotland plc, CFTC Docket No. 15-05 (November 11, 2014) ($290 million penalty) (CFTC Press Release 7056-14)
• In re UBS AG, CFTC Docket No. 15-06 (November 11, 2014) ($290 million penalty) (CFTC Press Release 7056-14)
• In re HSBC Bank plc, CFTC Docket No. 15-07 (November 11, 2014) ($275 million penalty) (CFTC Press Release 7056-14)
LIBOR Benchmark Cases
• In re Deutsche Bank AG, CFTC Docket No. 15-20 (April 23, 2015) ($800 million penalty) (CFTC Press Release 7159-15)
• In re UBS AG and UBS Securities Japan Co., Ltd., CFTC Docket No. 13-09 (December 19, 2012) ($700 million penalty) (CFTC Press Release 6472-12)
• In re Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank), CFTC Docket No. 14-02, (October 29, 2013) ($475 million penalty) (CFTC Press Release 6752-13)
• In re The Royal Bank of Scotland plc and RBS Securities Japan Limited, CFTC Docket No. 13-14 (February 6, 2013) ($325 million penalty) (CFTC Press Release 6510-13)
• In re Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc., CFTC Docket No. 12-25 (June 27, 2012) ($200 million penalty) (CFTC Press Release 6289-12)
• In re Lloyds Banking Group plc and Lloyds Bank plc, CFTC Docket No. 14-18 (July 28, 2014) ($105 million penalty) (CFTC Press Release 6966-14)
• In re ICAP Europe Limited, CFTC Docket No. 13-38 (September 25, 2013) ($65 million penalty) (CFTC Press Release 6708-13)
• In re RP Martin Holdings Limited and Martin Brokers (UK) Ltd., CFTC Docket No. 14-16 (May 15, 2014) ($1.2 million penalty) (CFTC Press Release 6930-14)
ISDAFIX Benchmark Case
• In re Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc., CFTC Docket No. 15-25 (May 20, 2015) ($115 million penalty)
In these actions, the CFTC ordered each institution to undertake specific steps to ensure the integrity and reliability of the benchmarks.
Last Updated: May 20, 2015