US
derivatives industry watchdog has slapped a fine of $45 million on HSBC Bank USA
for allegedly permitting ‘manipulative and deceptive trading’ by its traders
and failing to keep records of its business calls. The Commodity Futures and
Trading Commission (CFTC) announced the monetary penalty on Friday, noting that
it had reached a settlement with the subsidiary firm of the global British bank, HSBC.
Today @CFTCjohnson released a statement about the CFTC’s orders against HSBC for fraudulent and manipulative swaps trading and more. Read it here: https://t.co/GgenohESmS
— CFTC (@CFTC) May 12, 2023
CFTC Slams
HSBC for Spoofing
According
to CFTC, between March 2012 and 2015, traders at the HSBC subsidiary, which is
registered as a provisional swap dealer, repeatedly engaged in deceptive
trading and spoofing
Read this Term related to swaps
Read this Term with bond issuers. The watchdog
noted that the firm’s traders used its counterparties’ material confidential
information about the timing and pricing of issuer swaps to increase HSBC’s
profitability to their detriment.
Furthermore,
the regulator alleged that the subsidiary tried to manipulate on-screen prices, on which issuer swaps were partly based, by spoofing interdealer brokerages that
controlled the screens. Spoofing refers to a fraudulent practice where traders place orders with the intent to cancel them before their execution.
“HSBC
traders intentionally traded at the broker firms controlling the relevant
screens during telephonic pricing calls in which the bond issuances, and the
related issuer swaps, were priced, and HSBC traders structured their trading
intentionally to move prices for the relevant swaps on these screens,” the CFTC
explained.
The
watchdog pointed out that supervisors and senior management at the swap dealer
knew of this conduct and encouraged their traders to engage in the practice.
On the
other hand, the derivatives watchdog said from at least March to July 2020,
HSBC failed to make and keep recordings of its swap business-related mobile
phone calls due to a recording failure.
In a separate
statement, the derivatives market supervisor said it had slammed two HSBC provisional swap dealers, HSBC
Bank USA and HSBC Bank Plc, as well as HSBC Securities (USA) Inc., a futures commission merchant,
with over $30 million in penalties for their record keeping failures and discussing deals via unapproved methods, such as personal text
and WhatsApp.
This just in, @CFTCcgr released a statement about HSBC and market manipulation and the widespread use of WhatsApp and other unauthorized communications platforms to evade regulatory oversight. Read it here: https://t.co/rqmqMYFCm3
— CFTC (@CFTC) May 12, 2023
“The order
further finds the widespread use of unapproved communication methods violated
HSBC’s own policies and procedures, which generally prohibited business-related
communication taking place via unapproved methods,” the CFTC explained.
“Further, some of the very same supervisory personnel responsible for ensuring
compliance with the firms’ policies and procedures themselves used non-approved
methods of communication to engage in business-related communications, in
violation of firm policy," it added.
CFTC Heightens Crackdown on 'Off-Channel Communications'
Meanwhile, the CFTC earlier on Thursday announced that it had fined The Bank of Nova Scotia (BNS),
another provisionally registered swap dealer, and Scotia Capital USA Inc, a
futures commission merchant, the sum of $15 million for failing to keep
their records ‘for a period of years’. Moreover, the regulator found 'widespread use
of unapproved communication methods,' among the affiliates.
Today the CFTC announced that it ordered the Bank of Nova Scotia to pay a $15M penalty for recordkeeping and supervision failures for widespread use of unapproved communication methods. Learn more: https://t.co/Ecdvrznljp
— CFTC (@CFTC) May 11, 2023
The CFTC’s
latest action against HSBC and BNS’ affiliates is a continuation of its
crackdown on electronic trading firms in the country for the use of WhatsApp-like
devices for official business communication. In September last year, the
watchdog slammed a total penalty
of $1.1 billion on 16 Wall Street firms for their ‘off-channel communications’.
The firms
include subsidiaries of Barclays, BofA, Citigroup and Goldman Sachs, among others.
US
derivatives industry watchdog has slapped a fine of $45 million on HSBC Bank USA
for allegedly permitting ‘manipulative and deceptive trading’ by its traders
and failing to keep records of its business calls. The Commodity Futures and
Trading Commission (CFTC) announced the monetary penalty on Friday, noting that
it had reached a settlement with the subsidiary firm of the global British bank, HSBC.
Today @CFTCjohnson released a statement about the CFTC’s orders against HSBC for fraudulent and manipulative swaps trading and more. Read it here: https://t.co/GgenohESmS
— CFTC (@CFTC) May 12, 2023
CFTC Slams
HSBC for Spoofing
According
to CFTC, between March 2012 and 2015, traders at the HSBC subsidiary, which is
registered as a provisional swap dealer, repeatedly engaged in deceptive
trading and spoofing
Read this Term related to swaps
Read this Term with bond issuers. The watchdog
noted that the firm’s traders used its counterparties’ material confidential
information about the timing and pricing of issuer swaps to increase HSBC’s
profitability to their detriment.
Furthermore,
the regulator alleged that the subsidiary tried to manipulate on-screen prices, on which issuer swaps were partly based, by spoofing interdealer brokerages that
controlled the screens. Spoofing refers to a fraudulent practice where traders place orders with the intent to cancel them before their execution.
“HSBC
traders intentionally traded at the broker firms controlling the relevant
screens during telephonic pricing calls in which the bond issuances, and the
related issuer swaps, were priced, and HSBC traders structured their trading
intentionally to move prices for the relevant swaps on these screens,” the CFTC
explained.
The
watchdog pointed out that supervisors and senior management at the swap dealer
knew of this conduct and encouraged their traders to engage in the practice.
On the
other hand, the derivatives watchdog said from at least March to July 2020,
HSBC failed to make and keep recordings of its swap business-related mobile
phone calls due to a recording failure.
In a separate
statement, the derivatives market supervisor said it had slammed two HSBC provisional swap dealers, HSBC
Bank USA and HSBC Bank Plc, as well as HSBC Securities (USA) Inc., a futures commission merchant,
with over $30 million in penalties for their record keeping failures and discussing deals via unapproved methods, such as personal text
and WhatsApp.
This just in, @CFTCcgr released a statement about HSBC and market manipulation and the widespread use of WhatsApp and other unauthorized communications platforms to evade regulatory oversight. Read it here: https://t.co/rqmqMYFCm3
— CFTC (@CFTC) May 12, 2023
“The order
further finds the widespread use of unapproved communication methods violated
HSBC’s own policies and procedures, which generally prohibited business-related
communication taking place via unapproved methods,” the CFTC explained.
“Further, some of the very same supervisory personnel responsible for ensuring
compliance with the firms’ policies and procedures themselves used non-approved
methods of communication to engage in business-related communications, in
violation of firm policy," it added.
CFTC Heightens Crackdown on 'Off-Channel Communications'
Meanwhile, the CFTC earlier on Thursday announced that it had fined The Bank of Nova Scotia (BNS),
another provisionally registered swap dealer, and Scotia Capital USA Inc, a
futures commission merchant, the sum of $15 million for failing to keep
their records ‘for a period of years’. Moreover, the regulator found 'widespread use
of unapproved communication methods,' among the affiliates.
Today the CFTC announced that it ordered the Bank of Nova Scotia to pay a $15M penalty for recordkeeping and supervision failures for widespread use of unapproved communication methods. Learn more: https://t.co/Ecdvrznljp
— CFTC (@CFTC) May 11, 2023
The CFTC’s
latest action against HSBC and BNS’ affiliates is a continuation of its
crackdown on electronic trading firms in the country for the use of WhatsApp-like
devices for official business communication. In September last year, the
watchdog slammed a total penalty
of $1.1 billion on 16 Wall Street firms for their ‘off-channel communications’.
The firms
include subsidiaries of Barclays, BofA, Citigroup and Goldman Sachs, among others.
