Goldman Sachs Pays $120M Penalty to Settle USD ISDAFIX Rigging Allegations

Goldman Sachs Group and Goldman, Sachs & Co. (GS) will pay a $120M penalty to settle Commodity Futures Trading Commission Charges accusing the firm of trying to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix, as well as of falsifying related reports to enhance its derivatives positions. The USD ISDAFIX is the global benchmark is for interest rate products. Its rates and spreads are tied to benchmarks for interest swaps and related derivatives, which in turn impact a number or currencies’ daily market rate. A number of local and state governments in this country, as well as pension funds, depend on instruments determined by USD ISDAFIX when hedging against certain interest rate changes.

Now, the CFTC wants Goldman to not only pay the civil penalty but also to cease and desist from the violations charged. The regulator contends that multiple Goldman traders, including the firm’s Interest Rate Products Trading Group head in the US, were involved in the alleged misconduct.

The CFTC said that Goldman, via its traders, engaged in transactions involving US treasuries, interest rate swap spreads, and Eurodollar futures contracts in a way specifically designed to impact the published interest rate benchmark. Goldman also purportedly tried to rig and make false reports about the USD ISDAFIX through these employees’ actions. These alleged acts were at the expense of clients and derivatives counterparties.

As part of the settlement, Goldman will have to provide certification verifying the effectiveness of improved internal controls and institute steps to make sure that the firm is able to identify and stop any trading designed to rig swap rates. The CFTC wants Goldman to get behind a more reliable benchmark submission policy.

Goldman is not the first firm subject to penalties brought by the CFTC over alleged rigging involving ISDAFIX. Several months ago, Citibank (C) was ordered to pay a $250M penalty. The year before, Barclays (BARC) was told to pay a $115M penalty.

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The CFTC Order in the Goldman Case (PDF)

Examples of Goldman’s purported misconduct (PDF)

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