From: RegTech Analyst
A trader at a global investment bank is accused of deceitfully manipulating a deal between a bond issuer and the investment bank he was working at.
The U.S. Commodity Futures Trading Commission (CFTC) has filed for a civil enforcement action against the French national.
The suit dates back to 2012 when the banker, who worked as the head of North American rates at the bank’s New York office, led a deal between the bank and a bond issuer.
The bond issuer had negotiated with the bank to price a bond issuance and a related swap using specific screens displaying prices from an interdealer broker firm, including prices for US dollar interest rate basis swaps with a five-year maturity.
Despite knowing the details of the deal, the banker decided to manipulate the screens to maximize the bank’s profits, according to the CFTC suit.
The watchdog believed that the banker tasked a trader under his supervision to “push the screen as much as we can before the pricing” of the swap with the issuer, resulting in a trade at a lower price for five-year basis swaps, which benefited the bank.
The trader then in turn enlisted the help of a broker at the interdealer broker firm, including telling the broker in advance that the trader needed to move prices on the screens. During the pricing of the swap, the banker allegedly directed the trader as to when to sell a large quantity of swaps to manipulate the prices on the broker screens.
He then presented the final pricing to the bond issuer, telling them the bank could not control the screen, according to the lawsuit.
“Combating manipulative and deceptive conduct in the swaps markets is crucial to our agency’s mission to preserve market integrity and to protect market participants,” said James McDonald, director of enforcement at CFTC. “We will continue to vigorously pursue all forms of misconduct in the swaps markets, including misconduct related to swaps with bond issuers like that alleged here.”
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