The CFTC simultaneously filed and settled charges against two
banking institutions for "executing fictitious and
noncompetitive block trades in Russian Ruble/U.S. Dollar
('RUB/USD') futures contracts, which were cleared through
the Chicago Mercantile Exchange ('CME')." The banks
were based out of Russia and the UK, respectively.
Among other violations, the CFTC Order found that the banks:
executed over 100 block trades in
RUB/USD contracts on the CME, with a notional value of
approximately $36 billion;
transferred cross-currency risk
through these non-arms-length, risk-free trades to allow the risk
to be hedged in the over-the-counter ("OTC") swaps market
and, consequently, obtain more favorable prices than they otherwise
would have obtained if they had to deal with other third
used block trades in RUB/USD
contracts to make fictitious sales and caused prices to be reported
to, or recorded by, the CME that were not true and bona
fide prices, thereby violating Section 4c(a)(l) and (2) of the
failed to obtain fair and reasonable
prices in light of the circumstances of the markets and the parties
to the block trades; and
failed to ensure that the
transactions were also in compliance with the applicable exchange
requirements (and, thus, the trades were in violation of CFTC Rule
The CFTC found that the block trades were entered into to
transfer cross-currency risk from the Russian-based bank to the
UK-incorporated bank in order to enable the latter to hedge the
risk, which the former was unable to do.
The CFTC Order required the banks to jointly and severally pay a
$5 million civil monetary penalty. Additionally, the Order required
the banks to, as charged: (i) comply with certain undertakings,
including instituting, updating, and/or strengthening policies and
procedures designed to detect, deter, discipline, and correct any
potential fictitious or noncompetitive trading on U.S. markets in
violation of the CEA and a CFTC Regulation; (ii) conduct training
addressing the ethics, compliance and legal requirements with
regard to fictitious or noncompetitive trading under the CEA and
CFTC Regulations; and (iii) cease and desist from further
violations of the CEA and a CFTC Regulation. The CFTC did recognize
the banks' "significant cooperation during the
investigation of this matter."
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