RBS Fined $85 Million by CFTC for Manipulation of ISDAfix

Amongst themselves, RBS traders joked about their attempts to manipulate the USD ISDAFIX.

The Royal Bank of Scotland plc (RBS) was fined $85 million on Friday by the US Commodity Futures Trading Commission for allegedly attempting to manipulate a major benchmark interest rate, according to a CFTC statement.

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The regulator said that RBS traders attempted to manipulate the US dollar iteration of ISDAfix, or the International Swaps and Derivatives Association Fix, from January 2007 through to March 2012.

The ISDAfix benchmark is widely used in setting payout rates on a range of interest rate products. The rates are also used to help value the cash settlement of options on interest rate swaps and other products. Pension funds and local governments often rely on products priced off the benchmark rate to help hedge against future interest rate changes.

In a statement, the CFTC explained that the ISDAFIX US dollar rate is quoted at 11 a.m. where the submitting banks are polled about the rate during a specific time period and asked to submit estimates. An average is taken from the contributions, but during the polling window, banks can change their contributions, and thereby affect the published USD ISDAFIX.

According to the order, the CFTC said that RBS, one of the panel banks which submitted rates that determined the daily US ISDAfix rate, tried to artificially move the rate through its trading at the 11:00 a.m. fixing in order to benefit cash-settled swaps held by RBS that were priced or valued against the benchmark.

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The CFTC said that traders discussed trades as being based on the ‘jacked price’ and not the ‘fair price’, and how they had managed to ‘game the fix’ to benefit their own positions. Amongst themselves, RBS traders joked about their attempts to manipulate the USD ISDAFIX.

A RBS trader emailed this joke to other RBS swaps traders and RBS’s swaps broker employees:

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[Swaps Trader 1] tried for manipulating ISDAFIX3 settlement . . . [Swaps Trader 1] is on a recorded line shouting, “GET THE NINES DOWN [Broker], GET THE NINES DOWN, NOW NOW NOW”. RBS could not be reached for comment.

At the time, RBS didn’t have any internal controls to regulate how the submission should be made, a situation that the bank is now required to take specified steps to remedy.

The case against RBS is the latest in a series of broad investigations into the manipulation by big banks of a variety of global benchmark rates. A number of banks have also resolved parallel criminal charges related to the manipulation of various global benchmarks.

“People around the world rely on benchmark rates such as ISDAFIX. This is our fourth enforcement action relating to attempts to manipulate the ISDAFIX. These actions, and the CFTC’s previous cases against those who sought to corrupt the LIBOR and foreign exchange benchmark rates, make clear that the Commission takes very seriously its role in ensuring the integrity of any and all benchmarks used in our markets,” said Aitan Goelman, Director of the CFTC’s Division of Enforcement.

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