BNP Paribas Securities has been imposed a fine of $90m by the US Commodity Futures Trading Commission (CFTC) for alleged attempt to manipulate the US dollar International Swaps and Derivatives Association Fix (ISDAFIX) benchmark.
Image: BNP Paribas has been fined by CFTC over alleged ISDAFIX manipulation. Photo: courtesy of BNP Paribas.
The regulator alleged that BNP Paribas had indulged in the practice over a period of five years between, possibly between May 2008 and August 2012.
CFTC said that its probe found that an effort was made by the bank to rig the benchmark to benefit its derivatives positions in instruments like cash-settled options on interest rate swaps and some exotic structured products.
The regulator’s order found that the alleged unlawful conduct of BNP Paribas had the involvement of various traders and also included supervisors.
Its order alleged that through its traders, the bank indulged in bidding, offering, and executing transactions in interest rate swap spreads deliberately at the critical 11:00AM fixing time.
CFTC hinted that this was done with a motive to affect the captured reference rates at the 11:00AM time and send them to submitting banks, to affect the published US dollar ISDAFIX.
The regulator noted that BNP Paribas traders recognized that the manipulation at 11:00AM could offer risks as well as opportunities for the bank.
It also found that to complement the manipulative efforts, the BNP Paribas traders had sometimes tried to manipulate the USD ISDAFIX by making USD ISDAFIX submissions higher or lower to benefit from derivative positions priced or valued against the benchmark.
CFTC, in a statement, said: “Certain BNPP traders described such attempts to manipulate the USD ISDAFIX as ways to “play the fixing,” “push the screen,” and “play[] the screen game.” As found in the Order, the communications among BNPP traders could be explicit, such as when a swaps trader confirmed in all-capitals to an options trader: “ok you need the fixing to be AS HIGH AS POSSIBLE,” or when an options trader stated to a group of BNPP traders, “at 11am we want to fix as low as possible.”
Apart from the $90m civil monetary penalty, CFTC’s order asks BNP Paribas to stop and desist from further violations as charged, and take up certain remedial steps. Included in these are steps to detect and deter trading intended to manipulate swap rates like the USD ISDAFIX.