JPMorgan Chase Bank is to pay a USD65 million to settle CFTC charges that it attempted to manipulate of the ISDAFIX benchmark.
A CFTC Order found that over a five-year period, beginning in at least January 2007 and continuing until January 2012 (the Relevant Period), JPMC made false reports and attempted to manipulate the US 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.
James McDonald, CFTC Director of Enforcement, says: “This matter is one in a series of CFTC actions that 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.”
During the Relevant Period, USD ISDAFIX was set each day in a process that began at 11:00 am Eastern Time with the capture and recording of swap rates and spreads from a US based unit of a leading interest rate swaps brokering firm (Swaps Broker). ISDAFIX rates and spreads are published daily and are meant to indicate the prevailing mid-market rate, at a specific time of day, for the fixed leg of a standard fixed-for-floating interest rate swap. They are issued in several currencies and are published for various maturities of US Dollar-denominated swaps. The most widely used USD ISDAFIX rates and spreads, and the ones at issue in this Order, are those that are intended to indicate the prevailing market rate as of 11:00 am Eastern Time. The 11:00 am USD ISDAFIX rate is used for the cash settlement of options on interest rate swaps, or swaptions, and as a valuation tool for certain other interest rate products.
The Order finds that certain JPMC traders understood and employed two primary means in their attempts to manipulate USD ISDAFIX rates: trading attempted manipulation and submission attempted manipulation.
JPMC has taken specified 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 directly or indirectly swap rates, including benchmarks based on interest-rate swaps and to ensure the integrity of the fixing of any interest-rate swap benchmark.
In accepting the Bank’s offer, the Commission recognises that JPMC provided substantial cooperation in the investigation in this matter, and commenced significant remedial action to strengthen the internal controls and policies relating to all benchmarks, including ISDAFIX.
