Securities Regulation Daily CFTC fines BNP Paribas $90M for interest rate benchmark misconduct
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Wednesday, August 29, 2018

CFTC fines BNP Paribas $90M for interest rate benchmark misconduct

By Lene Powell, J.D.

In a settled matter, the CFTC ordered BNP Paribas Securities Corp. (BNPP) to pay a $90 million civil monetary penalty for attempted manipulation and false reporting of the ISDAFIX benchmark. Through its traders, the New York-based bank transacted in interest rate swap spreads and skewed submissions in ways designed to influence the published USD ISDAFIX in order to benefit the bank’s derivatives positions (In the Matter of BNP Paribas Securities Corp., August 29, 2018).

"This matter, the seventh enforcement action relating to the USD ISDAFIX benchmark, further demonstrates that the CFTC will continue to be vigilant and aggressive in protecting the integrity of our markets," said CFTC Enforcement Director James McDonald. "And we won’t stop until all wrongdoers are held accountable—no matter how broadly the misconduct stretches across the industry."

Attempted manipulation and false reporting. During the relevant period (2007-2012) USD ISDAFIX rates and spreads were leading global benchmarks that indicated prevailing market rates for "plain-vanilla" interest rate swaps. USD ISDAFIX was set daily in a process that started with the capture and recording of swap rates and spreads from a U.S.-based unit of a leading interest rate swaps broking firm ("swaps broker"). The swaps broker disseminated these rates and spreads as references to a panel of banks, including BNPP. Each panel bank then made submissions to the swaps broker, which were supposed to reflect the midpoint of where that dealer would itself offer and bid a swap to a dealer of good credit as of 11 a.m. Eastern Time.

On certain days, certain individuals at BNPP attempted to manipulate USD ISDAFIX rates through trading at the 11 a.m. fixing by coordinating their trades. Traders discussed, both among themselves and with employees of the swaps broker, their intent to move USD ISDAFIX rates in whichever direction benefitted their positions. They had various terms for this activity, including "play the fixing," "push the screen," and "play the screen game."

On occasion, traders also made false submissions to the swaps broker that were skewed to benefit BNPP’s derivatives positions. Depending on the direction required, BNPP traders made USD ISDAFIX submissions higher or lower than the reference values disseminated by the swaps broker. This was improper because the bank’s derivatives trading positions or profitability were not legitimate or permissible factors on which to base submissions in connection with a benchmark.

Sanctions and remedial measures. Without admitting the CFTC’s findings or conclusions, BNPP agreed to pay a $90 million civil monetary penalty. In accepting BNPP’s offer, the CFTC recognized the bank’s "significant" cooperation during investigation of the matter. BNPP also undertook significant remedial measures to improve internal controls and policies related to benchmarks, including risk reviews and enhanced training, surveillance, and guidance on ethics and conduct.

The order is CFTC Docket No. 18-19.

MainStory: TopStory CommodityFutures Derivatives Enforcement FraudManipulation Swaps NewYorkNews

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