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From Securities Regulation Daily, June 18, 2018

CFTC fines JPMorgan $65M for attempted manipulation of USD ISDAFIX benchmark

By Amy Leisinger, J.D.

The CFTC charged JPMorgan Chase Bank, N.A. with making false reports and attempting to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark referenced in a range of interest rate products, to benefit its derivatives positions over a five-year period. According to the Commission, JPMorgan traders attempted trading manipulation by bidding, offering, and executing transactions in targeted interest rate products and submission manipulation by submitting rates that were false, misleading, or knowingly inaccurate. To settle the matter, JPMorgan agreed to pay a $65 million civil monetary penalty (In the Matter of JPMorgan Chase Bank, N.A.CFTC Docket No. 18-15, June 18, 2018).

CFTC Enforcement Director James McDonald said this matter "clearly demonstrates the Commission’s unrelenting commitment to root out manipulation from our markets and to protect those who rely on the integrity of critical financial benchmarks."

USD ISDAFIX manipulation. USD ISDAFIX rates and spreads are among the leading benchmarks for interest rate swaps and related derivatives. USD ISDAFIX rates and spreads are published daily for various maturities of U.S. dollar-denominated swaps and used for various purposes including cash settlement of options on interest rate swaps, valuation of certain interest rate products, and the pricing of debt issuances.

According to the CFTC, JPMorgan traders attempted to manipulate the USD ISDAFIX by executing key transactions at the time of the daily fixing window in order to affect reference rates submitted for calculation of the benchmark, with the aim of benefiting the bank’s derivatives positions priced or valued off of the benchmark. JPMorgan’s efforts to manipulate the USD ISDAFIX were common knowledge to certain JPMorgan traders, the CFTC alleged.

In addition, the Commission found that JPMorgan attempted to manipulate the final published USD ISDAFIX rates by submitting rates that were false, misleading, or knowingly inaccurate despite purporting to reflect JPMorgan’s honest view of the true costs of certain interest rate swaps. With these false submissions, the CFTC alleged, JPMorgan attempted to skew the rates and spreads submitted in the direction that could have moved the USD ISDAFIX setting to benefit its trading positions. These submissions did not reflect where JPMorgan would itself bid or offer interest rate swaps but rather prices more favorable to its specific positions, according to the Commission.

Sanctions. Without admitting or denying the Commission’s findings, JPMorgan agreed to cease and desist from violations of the anti-manipulation provisions of the Commodity Exchange Act and the CFTC’s rules and to pay a $65 million civil penalty. In accepting the settlement offer, the Commission acknowledged JPMorgan’s cooperation and efforts to strengthen its internal controls and procedures relating to the fixing of benchmarks and to detect and prevent trading designed to manipulate swap rates and benchmarks, as well as its plans to enhance trade supervision and employee training. Pursuant to the CFTC’s order, JPMorgan must report to the Commission concerning its remediation efforts and its compliance with the undertakings set forth in the CFTC’s order.

The release is CFTC Docket No. 18-15.

Companies: JPMorgan Chase Bank, N.A.

MainStory: TopStory CommodityFutures Derivatives FinancialIntermediaries FraudManipulation Swaps

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