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 parties;
  • 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 CEA;
  • 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 1.38(a)).

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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