Deutsche Bank fined US$70m for trying to rig benchmark rate

[SEATTLE] Deutsche Bank agreed to pay US$70 million to settle a US regulator's claims its traders sought to manipulate a benchmark for interest-rate derivatives and other financial instruments.

For years, traders at Deutsche Bank Securities sought to rig the ISDAfix to benefit the firms' positions on cash-settled options on interest-rate swaps, the Commodity Futures Trading Commission said in a statement late Thursday announcing the settlement. Investigators said the bank's personnel attempted to steer the rate with a pair of strategies and that abuses occurred from 2007 until May of 2012.

The bank's staff allegedly knew, and even discussed, that they were breaking the law. At one point, a trader confided to a broker that "a lot of people would actually do jail time" if the government ever caught on, the agency wrote in its statement.

Though arcane, ISDAfix plays an important role in global financial markets, helping determine the value of trillions of dollars of interest-rate swaps and other instruments.

Rigging can have far-flung effects, with fluctuations in the benchmark helping to determine the performance of structured notes bought by wealthy individuals and the amounts some states pay on pension annuities.

"There is no room in our markets for manipulation," the CFTC's director of enforcement, James McDonald, wrote in the statement. "We will continue to work hard to stamp it out, wherever we find it."

Deutsche Bank Securities, a subsidiary of the Frankfurt-based firm, settled the agency's complaint without admitting or denying wrongdoing.

"We have cooperated extensively with the CFTC's investigation and have undertaken significant efforts to remediate benchmark-related activities," Deutsche Bank said in an emailed statement.

The company follows firms including Citigroup, Barclays, Goldman Sachs Group and Royal Bank of Scotland Group in settling CFTC probes involving ISDAfix. The agency has levied more than US$600 million in fines. Typically - as in Deutsche Bank's case - it has alleged attempted manipulation, not showing banks and brokers actually changed the rate.

BLOOMBERG