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Friday
Sep232016

CFTC fines Russia bank $5 million for $36 billion of phony ruble-dollar trades

The U.S. Commodity Futures Trading Commission fined a Russia bank $6 million Monday for executing "fictitious and noncompetitive" Russian Ruble - U.S. dollar futures contracts on the Chicago Mercantile Exchange.

The CFTC brought the enforcement action against VTB Bank, headquartered in St. Petersburg, Russia, and its subsidiary VTB Capital PLC.

VTB Capital is a U.K.-incorporated bank.

The CFTC’s order required VTB Bank and VTB Capital to jointly and severally pay a $5 million civil penalty.

VTB Bank didn't have the capital base to hedge a large position in ruble - dollar contracts, the CFTC said.

So between December 2010 and June 2013, VTB Bank and VTB Capital executed on the CME over 100 block trades in RUB/USD futures contracts, with a notional value of about $36 billion.

The purpose of the trades was to transfer VTB’s cross-currency risk to VTB Capital at prices more favorable than VTB could have obtained from third-parties.

VTB Capital then hedged the cross-currency risk in OTC swaps with various international banks.

That allowed VTB Bank to accomplish through risk-free, non-arms-length transactions in the futures market what it couldn't do through the swaps market.

The block trades were fictitious sales, the CFTC said. They were done without risk to VTB Bank and reported by the CME at prices that weren't bona fide prices.

Non-competitive and fictitious trades violate CFTC rules.

VTB is the former Vneshtorgbank. The Russian government controls most of the stock in VTB. The Bank of Moscow is VTB's biggest subsidiary.

The CFTC said VTB Bank and VTB Capital cooperated with the U.S. investigation.

The UK Financial Conduct Authority helped the CFTC in the investigation.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016.

Reader Comments (1)

Greetings:

Given the nature of the violation, the sanction seems inadequate, even if the wrongdoer cooperated in the violation, no?
September 23, 2016 | Unregistered CommenterEthan S. Burger
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