Major banks continue to face investigations by banking regulators for business misconducts. Now it’s the turn of the Department of Financial Services (“DFS”) to probe the banks for alleged manipulation of International Swaps and Derivatives Association Fix (“ISDAFIX”). The news, first reported by the Financial Times, stated the investigation is still at an early stage.
ISDAFIX is a global benchmark, used for setting values of interest rate swaps, and functions as a valuation tool for a number of financial products.
Though the DFS has sent request for information from major banks, no subpoenas have been issued. Further, no particular bank is in focus.
This news followed another revelation by the Financial Times. The German regulator – the Federal Financial Supervisory Authority (“BaFin”) – was eyeing Deutsche Bank AG DB for its involvement in ISDAFIX rigging. Notably, Deutsche Bank is the second global bank whose name is being publicly dragged into ISDAFIX manipulation.
In May 2015, Barclays PLC BCS became the first bank to be hit with a penalty for manipulation of the ISDAFIX. The company was penalized £74.2 million ($115 million) by the U.S. Commodity Futures Trading Commission (“CFTC”) to settle charges of manipulating ISDAFIX. (read more: Barclays Settles ISDAFIX Manipulation Charges for $115M)
Earlier in Apr 2013, the CFTC had issued subpoenas to ICAP, the interdealer broker, as well as nearly 15 global banks including Bank of America Corp. BAC, Barclays, Citigroup Inc. C, Credit Suisse AG CS, Deutsche Bank, HSBC Holdings Plc HSBC, JPMorgan Chase & Co. JPM and Wells Fargo & Co. WFC. These banks once formed part of the panel that submitted quotes for calculating ISDAFIX.
Apart from these, many banks also face civil lawsuits for rigging ISDAFIX.
Though the DFS has not discovered anything concrete related to the banks’ role in manipulating ISDAFIX, we cannot be sure about where this probe will lead to. Therefore, we must keep our fingers crossed, hoping that the banks were not involved. Otherwise, banks may have to pay huge penalties that would further hurt their financials, and the economic sector, as a whole.
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