Deutsche Bank to pay $70m to settle US rate-rigging probe

Deutsche Bank will pay $70m to settle charges from US derivatives regulators that its traders tried to rig a crucial benchmark in the $300tn interest-rate swaps market.

The civil penalty secured by the Commodity Futures Trading Commission is the fifth settlement the agency has reached in a long-running investigation and represents the latest in a series of US black marks for the German bank.

Over a period of at least five years to May 2012, “multiple” traders in Deutsche’s securities unit attempted to manipulate the US dollar International Swaps and Derivatives Association Fix (Isdafix), a benchmark referenced in a range of interest-rate products, the CFTC found.

On one occasion, when a Deutsche swaps trader told a broker, “I really have no desire to ever trade equities — it’s just a field day for the feds”, the broker responded: “This will be over soon as well and if they ever figured out exactly how pricing happened through [the swaps broker] on a daily basis a lot of people would actually do jail time.” 

James McDonald, director of enforcement at the CFTC, said Thursday’s 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.”

Before 11am in New York, banks provide the rate at which they would buy and sell a swap with a notional value of $50m. The submissions are then used to set benchmark rates for interest rate swaps, which are commonly used by banks, companies and asset managers for hedging exposure to swings in interest rates. The swaps allow two parties to exchange one stream of interest payments for another, over a set period of time.

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The notional value of interest-rate swap contracts came to $306tn at the end of June last year, according to the Bank for International Settlements, accounting for almost three-quarters of the interest-rate derivatives outstanding.

Citigroup has paid a $250m penalty, Barclays $115m, Goldman Sachs $120m and Royal Bank of Scotland $85m to settle charges of attempted Isdafix manipulation.

According to Thursday’s order from the CFTC, Deutsche “memorialised” its false submissions in a document called Swap Desk Guide. “Swap dealer desks submit 11am levels of rate and spreads for option striking purposes,” the guide said. “The options desk may ask for specific levels.”

Earlier this week Deutsche paid the lion’s share of a $40m fine from the CFTC for “spoofing” futures markets, or placing bogus orders to create the illusion of heavy supply or demand. Last October the bank agreed to pay $220m to dozens of US states to resolve claims that traders rigged Libor, the rates that underpin trillions of dollars of loans around the world.

Deutsche Bank said on Thursday it had “co-operated extensively with the CFTC’s investigation and [has] undertaken significant efforts to remediate benchmark-related activities.”