Risk & Compliance

Goldman Sachs to Pay $120 Million in Rate-Manipulation Case

The CFTC orders the investment bank to pay up in response to charges that traders deliberately influenced a U.S. global dollar benchmark.
Sean AlloccaDecember 22, 2016
Goldman Sachs to Pay $120 Million in Rate-Manipulation Case

Goldman Sachs has been ordered to pay a $120 million penalty over allegations that it manipulated a global dollar benchmark for interest-rate products, the Commodity and Futures Trading Commission said on Wednesday.

The investment bank used its own traders, including the head of Goldman’s Interest Rate Products Trading Group, to manipulate and create false reports concerning fixed-interest-rate swap rates over a five-year period. The traders bid, offered, and executed transactions “deliberately designed” in both timing and pricing to influence the global benchmark, the U.S. Dollar International Swaps and Derivatives Association Fix (ISDAFIX).

The ISDAFIX rates are used to help value the cash settlement of options on interest rate swaps, or swaptions. State governments and pension funds often rely on products priced off the benchmark to hedge against future changes in interest rates.

The CFTC produced emails and audio recording allegedly showing traders discussing trades based on a “jacked price” opposed to the “fair price” and how they managed to “game the fix” to benefit their own positions, according to the CFTC order.

Goldman traders made little effort to disguise their manipulations: “spend what you need, but make SURE we get the print” — the day’s reference rates — to sit at a favorable level, thereby affecting the benchmark.

The resolution to the case marks the third such order the CFTC has brought over the past two years. The other two were concluded with a $175 million order against Citigroup last May and a $400 million order against Barclays in 2015. The commission has imposed $5.2 billion in penalties in 18 actions relating to foreign-exchange benchmarks.

“This matter, the third enforcement action relating to the ISDAFIX benchmark, demonstrates the breadth of this kind of misconduct across the industry,” said CFTC enforcement director Aitan Goelman, “and within Goldman, the extent of the misconduct across trading desks and product lines.”

Other measures will require Goldman to detect and deter manipulative trading in the future through more robust internal controls and by ensuring the reliability of its benchmark submissions. Goldman’s interest-rate trading desk supervisor will be required to provide certification.

The CFTC also accused the bank of failing to adequately cooperate with the agency by failing to produce documents early on in the investigation.

Goldman Sachs agreed to pay the penalty without admitting or denying guilt.