CFTC Fines JP Morgan Over ISDAFix

The US Commodity Futures Trading Commission (CFTC) has issued an Order filing and settling charges against JP Morgan for attempted manipulation of the ISDAFix benchmark and requiring the bank to pay a $65 million civil monetary penalty. 

The Order finds that over a five-year period, beginning in at least January 2007 and continuing through January 2012, JPM made false reports and attempted to manipulate the dollar ISDAFix benchmark rate setting.

The Order finds that certain JPM traders understood and employed two primary means in their attempts to manipulate the fixes; trading attempted manipulation and submission attempted manipulation. 

On the first, the CFTC says the bank’s traders attempted to manipulate the fix by bidding, offering, and executing transactions in targeted interest rate products, including swap spreads and US Treasuries at or near the critical 11am fixing time to affect rates on the electronic interest rate swap screen known as the “19901 screen” and thereby increase or decrease the swaps broker’s reference rates and influence the final published USD ISDAFix. 

CFTC cites one JPMCemployee as acknowledging in an electronic communication with one of the swaps broker’s employees, it was possible to “muscle the fix at 11”.  As if often the instance in such cases, the Commission cites certain selected transcripts of conversations to back up its allegations, it says that the bank’s efforts to manipulate the fix and prices on the 19901 screen were common knowledge and openly joked about by certain JPM traders.  

The Order also finds that on certain days in which JPM had a trading position settling or resetting against the USD ISDAFix, it attempted to manipulate the final published rate set by submitting rates that were “false, misleading, or knowingly inaccurate because they purported to reflect JPM’s honest view of the true costs of entering into an interest rate swap in particular tenors, but in fact reflected traders’ desire to move USD ISDAFix higher or lower in order to benefit JPMC’s positions”.  

Again electronic communications captured examples of discussions between the JPM submitters and other trading desk employees that back up the CFTC’s case.  

In a release, the CFTC acknowledges that the bank has taken specified steps to implement and strengthen its internal controls and procedures relating to the fixing of interest-rate swaps benchmarks, including measures to detect and deter trading or other conduct potentially intended to manipulate directly or indirectly swap rates, including benchmarks based on interest-rate swaps and to ensure the integrity of the fixing of any interest-rate swap benchmark. 

In accepting the Bank’s offer, the Commission says it recognises that JPM provided substantial cooperation in the investigation in this matter, and commenced significant remedial action to strengthen the internal controls and policies relating to all benchmarks, including ISDAFix. 

“This matter is one in a series of CFTC actions that clearly demonstrates the Commission’s unrelenting commitment to root out manipulation from our markets and to protect those who rely on the integrity of critical financial benchmarks,” says James McDonald, CFTC director of enforcement.

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Colin Lambert

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