Natixis consents to a $2.8 million CFTC penalty for supervisory errors.
Global bank and swap dealer Natixis, located in Paris, will pay a $2.8 million fine to the Commodity Futures Trading Commission (CFTC) to resolve allegations that it failed to stop dishonest traders from entering incorrect and misleading information on deals during a five-year period.
The CFTC announced in a press release on Tuesday that traders on Natixis' New York-based interest rate derivatives desk (IRD desk) and equity derivatives flow and solution trading desk (FAST desk) mismarked their positions between 2015 and 2019 "for the purpose of either inflating profits and minimizing losses or to'smooth' out returns." According to the agency, Natixis neglected to adequately keep an eye on the traders' activity, allowing them to secretly alter the company's internal accounting and record-keeping system.
A trader on the ISD desk is accused of mismarking the desk's end-of-day U.S. LIBOR forward curve between 2015 and 2018. (closing curve). The mismarkings, which peaked in 2018, inflated the desk's profit and loss by $25 million and caused the bank to submit false financial statements to the CFTC.
The FAST desk's profit and loss were exaggerated by $6 million at its peak between 2017 and 2019 as a result of "certain manual adjustments made to the bank's internal trade booking systems" by certain Natixis traders. Additionally, as a result of such revisions, false financial statements were submitted to the CFTC.
The CFTC highlighted that Natixis cooperated with the inquiry, which resulted in a reduced fine.
The CFTC also negotiated an agreement with trader Blaise Brochard, who during a three-year period mislabeled holdings at Natixis' IRD desk in New York. According to a second news statement from the agency, Brochard consented to pay $250,000 and accept a three-year restriction on trading commodities interests.
The CFTC's Market Participants Division opened an inquiry after Natixis self-reported problems with their IRD desk to the National Futures Association. In accordance with the CFTC's directive, Natixis submitted documents and information, made presentations to agency personnel, made employees available for interviews, and kept CFTC staff informed of the status of the company's internal inquiry throughout the investigation.
The company also took steps to address the problems identified during the CFTC investigation, such as creating new marking and closing curve surveillance procedures, forming a U.S.-based valuation committee to provide additional oversight on valuation issues, and putting in place a "process that any requests for modification of trades would be made to a separate trade support function." The ruling said that Natixis adopted some of these corrective actions to its systems across other business lines.
According to the order, Natixis also terminated the employment of two traders who participated in the manipulation as well as the supervisor of one of those dealers.
An inquiry for comment from Natixis was not answered.
By fLEXI tEAM