Goldman Sachs Fined $120m, Following USD ISDAFIX Manipulation Charges

Goldman Sachs Group (NYSE:GS) has reached a $120 million settlement with the US’ Commodity Futures Trading Commission (CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term) following charges of manipulation and falsified reports surrounding the US Dollar International Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term and Derivatives Association Fix (USD ISDAFIX), per a regulatory filing.

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The USD ISDAFIX acts as a global benchmark for interest rate products. Moreover, the ISDAFIX rates and spreads constitute some of the most widely followed benchmarks for interest rate swaps and related derivatives, which dictate the prevailing and daily market rate for multiple currencies.

The CFTC order charged both Goldman Sachs Group, Inc. and Goldman, Sachs & Co., in addition to the head of the group’s Interest Rate Products Trading Group – in particular, between January 2007 and March 2012, the group was responsible for overseeing multiple instances of traders manipulating and falsifying reports in regards to the ISDAFIX in New York.

The main issue to have arisen was due to Goldman Sachs, via its traders, bid, offered, and executed transactions across interest rate swap spreads, treasuries, and Eurodollar futures contracts in a manipulative manner. The subsequent influence of the timing and prices of these transactions helped influence the USD ISDAFIX in order to benefit the group in its derivatives positions.

CFTC Calls for Steps to Prevent Abuse

Consequently, the CFTC order has levied a $120 million civil monetary penalty on Goldman, a cease and desist from further violations as charged, and a call to institute other steps to ensure that such violations will not transpire again.

These include detecting and deterring trading intended to manipulate swap rates such as USD ISDAFIX, as well as supporting a more reliable benchmark submission policy, along with improved internal controls.

The regulator is also not taking any chances, mandating Goldman’s current supervisor responsible for ISDAFIX to provide the requisite certification attesting to the prowess and effectiveness of the bank’s internal controls and aforementioned measures.

According to Aitan Goelman, the CFTC’s Director of Enforcement, in a recent statement on the order: “This matter, the third enforcement action relating to the ISDAFIX benchmark, demonstrates the breadth of this kind of misconduct across the industry, and within Goldman, the extent of the misconduct across trading desks and product lines.”

“The Division will continue to be vigilant and aggressive in protecting the integrity of the ISDAFIX and other important benchmarks relied upon by the markets,” he added.