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Goldman Sachs to pay 120 million USD for swaps benchmark rigging

First Published 22nd December 2016

CFTC orders Goldman Sachs to pay $120 million penalty for attempted manipulation of and false reporting of U.S. Dollar ISDAFIX benchmark swap rates.

Altan Goelman, CFTC

Altan Goelman, CFTC

The U.S. Commodity Futures Trading Commission (CFTC) issued an Order today filing and settling charges against Goldman Sachs. The Order finds that between January 2007 and March 2012 Goldman attempted, to manipulate and made false reports concerning the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark for interest rate products.

Goldman's unlawful conduct involved multiple traders, including the head of Goldman's Interest Rate Products Trading Group in the United States, according to the CFTC Order.

The CFTC Order requires Goldman to pay a $120 million civil monetary penalty, cease and desist from further violations as charged, and take specified remedial steps.

The Order also requires Goldman to provide a certification as to, among other things, the effectiveness of the internal controls and procedures undertaken and implemented by Goldman as a result of this settlement.

"This matter, the third enforcement action relating to the ISDAFIX benchmark, demonstrates the breadth of this kind of misconduct across the industry, and within Goldman, the extent of the misconduct across trading desks and product lines," commented Aitan Goelman, the CFTC's Director of Enforcement. Mr. Goelman further commented that "the Division will continue to be vigilant and aggressive in protecting the integrity of the ISDAFIX and other important benchmarks relied upon by the markets."

As found in the Order, Goldman attempted to manipulate USD ISDAFIX through its trading at the 11:00 a.m. fixing as well as by skewing the Bank's submissions, in order to benefit a range of derivatives positions held by Goldman that were priced or valued against the USD ISDAFIX benchmark.

Goldman traders bid, offered, and executed transactions of swap spreads, U.S. Treasuries, and Eurodollar futures contracts at the critical 11:00 a.m. fixing time with the intent to affect the "print," i.e., the reference rates captured at 11:00 a.m. and sent to submitting banks, and thereby to affect the published USD ISDAFIX. As captured in emails and audio recordings, when Goldman had derivatives positions settling or pricing against USD ISDAFIX, Goldman traders discussed their intent to move USD ISDAFIX in whichever direction benefitted their positions. Goldman traders stated their manipulative goals in plain language, such as directing their swap broker to "spend what you need, but make SURE we get the print," and even objected when their attempts to manipulate were not performed as inexpensively as possible, such as when the former head of Goldman's swap trading desk complained, "I should control the screen without having to given [sic] some loser another [trade]."

Among themselves, Goldman traders described trades based on the manipulated USD ISDAFIX as being based on the "jacked price," as opposed to the "fair price"; remarked that other Goldman traders had "gamed the fix" in order to benefit related positions; and strategized how best to extract the "higher value" of USD ISDAFIX cash settlements against customers who lacked Goldman's view, as a major swap dealer, into the USD ISDAFIX setting process.

To complement these efforts, as found in the Order, on many occasions during the Relevant Period, Goldman traders made USD ISDAFIX submissions higher or lower for the purpose of benefitting derivative positions priced or valued against the benchmark. As the Order finds, these submissions by Goldman were false, misleading, or knowingly inaccurate because they did not report where Goldman would itself bid and offer swaps absent a desire to manipulate the USD ISDAFIX, but rather reflected prices that were more favorable to the Bank's specific derivatives positions.

The Order describes multiple examples of each of these strategies for attempted manipulation and false reporting by Goldman traders during the Relevant Period.

The Order notes that prior to the latter stages of the Division's investigation, Goldman's cooperation was not satisfactory. Goldman did not make certain productions as expeditiously as the Division expected and initially failed to produce certain communications and documents that were potentially relevant to identifying misconduct. The Order recognizes that Goldman took remedial action to improve internal controls and policies related to ISDAFIX and its successor benchmark.

The CFTC has so far imposed over $5.2 billion in penalties in 18 actions against banks and brokers to address ISDAFIX, FX, and LIBOR benchmark abuses