Foreign Exchange, LIBOR, and ISDAFIX Benchmark Rates

With this year’s actions, the CFTC has imposed over $4.6 billion in penalties in 15 actions against banks and brokers to address FX, Libor, and ISDAFIX benchmark abuses and ensure the integrity of global financial benchmarks.  As Director Goelman emphasized, benchmark corruption is a central concern of the Agency: “Ensuring the integrity of our markets and the public’s faith in that integrity is a core mission of the CFTC.  There is very little that is more damaging to the public’s faith in the integrity of our markets than a cabal of international banks working together to manipulate a widely-used benchmark in furtherance of their own narrow interests.”

· The CFTC issued five Orders filing and settling charges against Citibank N.A. (Citibank), HSBC Bank plc (HSBC), JPMorgan Chase Bank N.A. (JPMorgan), The Royal Bank of Scotland plc (RBS), and UBS AG (UBS) for attempted manipulation of, and for aiding and abetting other banks’ attempts to manipulate, global foreign exchange benchmark rates to benefit the positions of certain traders.  The relevant period of conduct varied across the banks, with conduct commencing for certain banks in 2009, and for each bank, continuing into 2012.  The Orders collectively imposed over $1.4 billion in civil monetary penalties, specifically: $310 million each for Citibank andJPMorgan, $290 million each for RBS and UBS, and $275 million for HSBC.  The CFTC also required the banks to take remedial actions to improve their internal controls and procedures to ensure the integrity of their participation in the fixing of any foreign exchange benchmark rate.

· The CFTC filed and simultaneously settled two enforcement actions against Barclays Bank PLC for similar misconduct.  In the first action, the CFTC ordered Barclays Bank PLC to pay a $400 million civil monetary penalty for its attempts to manipulate and aid and abet others’ attempts to manipulate the global foreign exchange benchmarks.  The order noted that the magnitude of the fine reflects in part that the bank did not settle at an earlier stage of the investigation.

In the second action, the CFTC found that Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc.(collectively, Barclays) attempted to manipulate and made false reports concerning another global benchmark for interest rate products, the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX).  The CFTC required Barclays to pay a $115 million civil monetary penalty and to undertake remedial steps to improve related internal controls.  This was the first enforcement action by any governmental authority addressing abuses of this benchmark.  The Order also recognized Barclays’ early resolution of the matter.

· The CFTC issued an order against Deutsche Bank AG (Deutsche Bank) finding that Deutsche Bank routinely engaged in acts of false reporting and attempted manipulation and, at times, succeeded in manipulating the LIBOR for U.S. Dollar, Yen, Sterling, and Swiss Franc, and the Euro Interbank Offered Rate (Euribor), and did so to benefit cash and derivatives trading positions that were priced off LIBOR or Euribor.  The CFTC ordered Deutsche Bank to pay an $800 million civil monetary penalty, the largest fine in the CFTC’s history.

Other Attempted Manipulation Results

· Joseph F. Welsh III settled charges of attempted manipulation of the settlement prices of NYMEX palladium and platinum futures contracts, while working as a broker at MF Global, Inc.  The order requires Welsh to pay a $500,000 civil monetary penalty and permanently bans him from trading those contracts.  The CFTC had previously settled related enforcement actions against Welsh’s customer for whom the trades were entered, Christopher Louis Pia, and Pia’s former employer, Moore Capital Management LLC (a predecessor of Moore Capital Management, LP).