The Commodity Futures Trading Commission (CFTC) issued an order directed at Deutsche Bank Securities Inc. (DBSI), to pay a $70 million civil monetary penalty over charges of attempted manipulation of the ISDAFIX benchmark, between 2007 and 2012.
The US Dollar International Swaps and Derivatives Association Fix is a global benchmark, used in the settlement of various interest rate products, including cash settlement of options on interest rate swaps. The allegations indicate that Deutsche Bank and some of its traders intentionally attempted to manipulate the benchmark, in an effort to benefit the bank’s positions. The specific USD ISDAFIX rates and spreads that the bank attempted to alter are the ones issued at 11:00 a.m. Eastern Time each day, and act as a mid-market rate to accommodate settlements across various financial markets.
The serious allegations show that the bank’s traders would attempt to execute transactions in interest rate products, including swap spreads and US Treasuries at or adjacent to the 11:00 am fixing time, in order to affect the levels to benefit their existing positions. The accusations stem from recorded conversations between DBSI traders and the swaps broker, which indicated a direct communication of their intentions, showing that both sides were aware of the intended results and their respective motives. The report further exemplifies the violations by specifying that on more than one occasion, the swaps broker would ask DBSI’s traders how much “ammo” was at the disposal of certain traders, in order to “move the screen at 11:00 am.”
In a very detailed example given in the CFTC’s statement on its website, an incident was recorded on February 28, 2007, in which the swaps broker told a DBSI swaps trader: “I had to do what I had to do to keep ‘em down, right…We got the print…50 is not going to hold it.” This transcript provides clear evidence of the swaps broker’s awareness of the intentions of the trader to maintain a lower level for the USD ISDAFIX rate, in order to benefit the bank’s position on that particular day and time.
Another transcribed conversion demonstrated the clear understanding that DBSI traders had regarding the legality of their actions. The conversation shows the DBSI trader telling the swaps broker: “I really have no desire to ever trade equities. It’s just a field day for the feds.” In turn, the broker replied: “This will be over soon as well and if they ever figured out exactly how pricing happened through [the swaps broker] on a daily basis a lot of people would actually do jail time.”
The segmented conversations above provide clear evidence of fully aware parties partaking in illegal manipulation attempts to benefit DBSI’s positions, by altering the critical 11:00 am USD ISDAFIX rates, for the purpose of personal gain. In tandem with the $70 million penalty imposed on DBSI, James McDonald, CFTC Director of Enforcement, commented: “This action reflects the CFTC’s continued and vigilant commitment to protect those who rely on the integrity of critical financial benchmarks. There is no room in our markets for manipulation—we will continue to work hard to stamp it out, wherever we find it.”
Deutsche Bank has endured its share of allegations to unlawfully engage in various financial markets, including interest rate levels in the past. In 2015, the CFTC fined the German Bank $2.5 billion for its manipulation of LIBOR benchmarks, and its subsequent attempt to hinder the investigation.
While DBSI is at the forefront of several accusations, the CFTC has also been addressing violations of other banks and financial institutions. The commission has also recently taken actions to address issues pertaining to the surging cryptocurrency market to show its commitment to prevent fraudulent activity across various financial markets. The CFTC has dealt with wrongdoings associated with Bitcoin scams, illegal ICOs, and has also issued a subpoena to cryptocurrency exchange Bitfinex over its questionable relationship with Tether.