CFTC orders Citibank to pay for attempted manipulation and false reporting of US dollar ISDAFIX benchmark swap rates
The US Commodity Futures Trading Commission (CFTC) has ordered Citibank to pay a US$250m civil monetary penalty and to immediately cease and desist from further violations of the Commodity Exchange Act.
According to the CFTC order, between January 2007 and January 2012, Citibank attempted to manipulate and made false reports concerning the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark for interest rate products.
Citibank will be required to take "specified steps" to 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 regulator also issued charges against Citibank, Citibank Japan, and Citigroup Global Markets Japan relating to abuses of the London Interbank Offered Rate (Libor) and the Euroyen Tokyo Interbank Offered Rate (Euroyen Tibor) benchmarks. Specifically, Citigroup Global Markets Japan has been charged with attempting to manipulate Yen Libor and Euroyen Tibor, and Citibank Japan with false reporting of Euroyen Tibor, to benefit derivatives trading positions that were priced based on Yen Libor or Euroyen Ttibor. Separately, Citi is charged with the false reporting of US dollar Libor at times to avoid generating negative media attention and to protect its reputation during the financial crisis from the spring of 2008 through the summer of 2009.
According to this second CFTC order, Citi and its affiliates will be required to pay a penalty of US$175m, and adhere to specific undertakings to ensure the integrity of its Libor, Euroyen Tibor, and other benchmark interest rate submissions.
"The CFTC's order demonstrates that we will vigorously continue to investigate any efforts to manipulate financial benchmarks, and we will take action where possible to protect the integrity of these benchmarks," said Aitan Goelman (pictured), the CFTC's director of enforcement, in a statement.
These settlements represent a significant step for Citi in resolving its legacy benchmark rate investigations, said a Citi spokesperson in an emailed statement. "In addition to adopting industry-wide reforms related to participation in benchmark rates, Citi has made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behaviour," said the official. "Our greatest priority is to ensure that we conduct business in keeping with the highest ethical standards. We continue to fully cooperate with pending investigations conducted by other agencies related to benchmark rate submissions."
Although ISDAFIX is not as well-known as other benchmark indices such as the Libor, it plays an important role in global financial markets, helping determine the value of interest-rate swaps while fluctuations in the index are used to establish the performance of structured notes bought by wealthy individuals and the amounts some states pay on pension annuities.
The CFTC penalty comes on the back of several developments around financial benchmarks including the second review of the implementation of International Organization of Securities Commissions' (Iosco) principles for financial benchmarks by administrators of Euribor, Libor and Tibor, and the European Securities and Markets Authority (Esma) consultation on future proposals on draft Regulatory Technical Standards (RTS) and Technical Advice (TA) of the incoming Benchmarks Regulation (BR) to the European Commission (EC).
The implementation of the new rules will affect 3,155 live structures featuring the Libor, and 2,189 live products featuring the Euribor, according to SRP data. Other benchmarks under the regulatory radar include the Sterling Overnight Index Average (Sonia), Repurchase Overnight Index Average (Ronia), ISDAFIX (soon to be renamed the ICE Swap Rate), WM/Reuters (WMR) London 4pm Closing Spot Rate, London Gold Fixing (soon to be replaced by the LBMA Gold Price), LBMA Silver Price, and the ICE Brent Index.
In May 2015, Barclays Plc (BARC.L) was fined US$115 million by the CFTC to settle an investigation into the setting of the ISDAFIX benchmark. Earlier this month, seven of the world's biggest banks agreed to pay US$324m to settle a private US lawsuit accusing them of rigging an interest rate benchmark which is used to price swaps transactions, commercial real estate mortgages and structured debt securities. The lawsuit was filed by a number of US pension funds and municipalities which accused 14 banks, including those that settled, of conspiring to rig the benchmark for their own gain from at least 2009 to 2012.
The CFTC has imposed penalties of over US$5.08 billion in its investigation of manipulation of global benchmark rates. Of this, over US$1.8 billion in penalties has been imposed on six banks for misconduct relating to foreign exchange benchmarks, while over US$3.21 billion has been imposed for misconduct relating to ISDAFIX, LIBOR, Euribor, and other interest rate benchmarks.
UK and US regulators fine Deutsche more than £1.5bn for rate rigging
US CFTC adds sanctions to Lloyds Bank's Libor troubles
UK regulator flexes muscle over Libor
Rabobank to pay over €700m in Libor affair fines
Stoxx and Eurex Repo launch alternative to interbank benchmarks
Benchmark monitoring falls under national regulation