Bank of America (BoA) has become the latest firm to settle with the Commodity Futures Trading Commission (CFTC) over the attempted manipulation of the ISDAFIX benchmark, agreeing to pay a $30 million civil monetary penalty.
The CFTC Order finds that, beginning in January 2007 and continuing through December 2012, BoA made false reports and attempted to manipulate the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) in order to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps and interest rate swap futures.
James McDonald, CFTC Director of Enforcement, comments: “This marks the ninth CFTC enforcement action involving manipulative conduct in connection with the USD ISDAFIX benchmark. As this case shows, the Commission will continue to work vigilantly to ensure the integrity of critical financial benchmarks and hold all wrongdoers accountable, no matter how widespread the misconduct.”
During the period of the alleged malpractice by BoA, the ISDAFIX rates and spreads were published daily and were meant to indicate the prevailing mid-market rate, at a specific time of day, for the fixed leg of a standard fixed-for-floating interest rate swap.
The CFTC order issued today finds that certain BoA traders understood and employed two primary means in their attempts to manipulate USD ISDAFIX rates, each with the goal of moving the benchmark in the direction that favoured BoA on specific trading positions at the expense of its counterparties.
According to the CFTC, the bank attempted to manipulate USD ISDAFIX by bidding, offering, or trading swap spreads and US Treasuries at and around 11:00am to affect rates and thereby increase or decrease the swaps broker’s reference rates and spreads and influence the final published USD ISDAFIX. The CFTC claims that it also made false, misleading, or knowingly inaccurate submissions to swaps broker concerning swap rates and spreads.
In accepting the bank’s offer, the Commission recognises BoA’s cooperation during the investigation of this matter by its Division of Enforcement. The CFTC order also notes that BoA commenced significant remedial action to strengthen the internal controls and policies relating to all benchmarks, including ISDAFIX.
The other firms that have been fined by the CFTC in association with the attempted manipulation of the ISDAFIX benchmark are: RBS, Citibank, Barclays, JP Morgan, Goldman Sachs, BNP Paribas, Deutsche Bank and ICAP Capital Markets.