Barclays to Pay $115 Million to Settle ISDAfix Manipulation

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Barclays Plc agreed to pay $115 million to resolve claims it attempted to manipulate a key interest-rate benchmark two years after a Commodity Futures Trading Commission investigation was made public.

The agreement is the first enforcement action addressing ISDAfix, a global interest-rate benchmark used by banks, corporate treasurers and money managers to determine borrowing costs and to value much of the $381 trillion of outstanding interest-rate swaps, the CFTC said in a press release. Barclays was ordered to stop any further violations and take steps to detect and deter further swap-market manipulation, the CFTC said.

“It is likely Barclays is just the first bank” that will settle the ISDAfix charges, said Rosa Abrantes-Metz, an adjunct professor at New York University’s Stern School of Business who is serving as a consultant on a civil lawsuit against the banks related to ISDAfix. “I studied the likelihood that actual collusion between the banks occurred and the empirical evidence supports that.”

By trying to rig the measure, Barclays would have stood to profit on separate derivatives trades with clients who were seeking to hedge against moves in interest rates, the CFTC said. It wasn’t just Barclays, a person familiar with the investigation said in 2013. Wall Street’s largest dealers sought to change the value of the swaps because the ISDAfix rate sets prices for the other derivatives, known as swaptions, which are used by investment firms, a person familiar with the investigation said in 2013.

Industrywide Investigation

Barclays said the ISDAfix investigation was “industrywide,” according to a statement Wednesday. “Dealing with these issues, including taking the appropriate disciplinary action against the individuals involved, is a necessary and important part of our plan to transform Barclays and remains a key priority,” Anthony Jenkins, the bank’s chief executive officer, said in the statement. Barclays neither admitted nor denied the CFTC findings, according to the settlement.

The CFTC investigation centers on ICAP Plc’s U.S. interest-rate swap desk, nicknamed Treasure Island because brokers there were paid as much as $7 million a year at the market’s peak, two people with knowledge of the matter said in 2013. Bloomberg News first reported on the investigation in April of that year.

ICAP spokesman Guy Taylor said he couldn’t immediately comment.

Traders’ ‘Ammo’

Recorded telephone calls and e-mails reviewed by the CFTC show that traders at Barclays discussed their intentions to move the ISDAfix rate to benefit other derivatives trades they had placed.

Barclays traders referred to the swap trades they placed to move the benchmark as “‘ammo’ or as amounts the traders could ‘burn,’ ‘waste,’ or ‘use’ to ‘get the print’ or ‘affect’ the ‘fix,’” the CFTC said in the release.

Barclays also attempted to manipulate the benchmark by making false submissions to how the rate was calculated each day, the CFTC said. For the period under investigation, ISDAfix was created by averaging submissions from banks rather than actual trade data.

‘Knowingly Inaccurate’

“Barclays’ submissions were false, misleading, or knowingly inaccurate because they did not report where Barclays would itself bid and offer swaps absent a desire to manipulate,” the CFTC said.

Barclays also pleaded guilty to charges tied to a currency-rigging probe today and was among a group of six of the world’s biggest banks that will pay $5.8 billion, the Justice Department announced in Washington Wednesday.

Barclays was among banks that settled charges of manipulation of the London interbank offered rate, or Libor. In that case, it risked criminal prosecution in the U.S. under the settlement agreements if it was seen as withholding evidence in the ISDAfix investigation, a person with knowledge of the matter said in 2013.

“This was behavior that was going on extensively across many benchmarks, provoking systemic abuse across markets,” Abrantes-Metz said.

The CFTC, which first sent subpoenas to the world’s largest banks in November 2012 to determine whether ISDAfix was rigged, alerted the Justice Department last year to its findings, a person familiar with the matter said in September. The CFTC’s enforcement powers are confined to bringing civil, not criminal, cases.

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