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From Securities Regulation Daily, February 2, 2018

Deutsche Bank Securities agrees to pay $70M penalty for attempted swaps manipulation scheme

By Joanne Cursinella, J.D.

The Commodity Futures Trading Commission has filed and simultaneously settled charges against Deutsche Bank Securities Inc. (DBSI) for attempted manipulation of the ISDAFIX benchmark, ordering DBSI to pay a $70 million civil monetary penalty (In the Matter of Deutsche Bank Securities Inc., February 1, 2018).

USD ISDAFIX. DBSI is an approved swap firm registered with the CFTC as a commodity pool operator and futures commission merchant. It provides financial services to agencies, corporations, governments, private individuals, and institutions in the United States.

The CFTC alleges that beginning at least as early as January 2007 and continuing through May 2012 (the relevant period), DBSI, by and through certain of its traders, attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) a leading global benchmark referenced in a range of interest rate products, to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps.

According to the order, during the relevant period, USD ISDAFIX was set each day in a process that started 11:00 a.m. EST with the capture and recording of swap rates and spreads from a U.S- based unit of a leading interest rate swaps broking firm (the swaps broker). These rates are intended to indicate the prevailing market rate as of 11:00 a.m.

Attempted manipulation. The CFTC alleges that DBSI attempted to manipulate the USD ISDAFIX by bidding, offering, and executing transactions in targeted interest rate products, including swap spreads and U.S. Treasuries, at or near the critical 11:00 a.m. fixing time in order to affect rates and to increase or decrease the swaps broker’s reference rates and influence the final published USD ISDAFIX in order to benefit DBSI. The order also finds that DBSI traders knew their conduct in attempting to manipulate the USD ISDAFIX was illegal.

Settlement. In accepting the offer of settlement, pursuant to which DBSI neither admitted nor denied the findings or conclusions in the order, the CFTC acknowledged DBSI’s cooperation and noted that the firm has taken specified remedial steps to implement and strengthen its internal controls and procedures relating to the fixing of interest-rate swaps benchmarks, including measures to detect and deter trading or other conduct potentially intended to manipulate swap rates.

CFTC Enforcement Director James McDonald 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."

The proceeding is CFTC Docket No. 18-09.

Companies: Deutsche Bank Securities Inc.

MainStory: TopStory BrokerDealers Enforcement FraudManipulation RiskManagement Swaps CFTCNews

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