Royal Bank Of Canada Charged With Futures Trading Scheme By CFTC
20 King St. West, RBC Business Markets Downtown (Photo credit: Wikipedia)
The U.S. Commodity Futures Trading Commission turned up the heat on Royal Bank of Canada Monday, charging the bank with a multi-hundred million dollar trading scheme.
Monday’s charges allege the bank engaged in so-called “wash sales,” riskless trades engineered to net out positions in U.S. and Canadian stocks and futures before reaping tax benefits.
The CTFC says that from at least June 2007 to May 2010, RBC “allegedly non-competitively traded hundreds of millions of dollars’ worth of narrow based stock index future (NBI) and single stock futures (SSF) contracts with two of its subsidiaries.”
Reported as ”block” trades on electronic futures exchange OneChicago, these trades “constituted unlawful non-competitive trades, wash sales and fictitious sales,” the regulator says. Rather than negotiated between counterparties, the trades at question “were instead designed and controlled by a small group of senior RBC personnel acting on RBC’s behalf,” as part of a scheme geared toward realizing “lucrative Canadian tax benefits from holding certain public companies’ securities.”
RBC is also charged with concealing the manner in which the trades were conducted from the CME Group, which exercised the regulatory compliance function for OneChicago.
“A fundamental purpose of the futures markets is to provide an arm’s-length mechanism for market participants to discover prices and shift risks associated with products traded in those markets,” said David Meister, the Director of the CFTC’s Division of Enforcement. “As we allege, RBC not only designed and executed a wash sale scheme that undermined that purpose, it went a step further and misled the exchange into believing that its conduct was lawful. Today’s action should make clear that the CFTC will not hesitate to bring charges against even the most sophisticated market participants who unlawfully exploit the futures markets for their own gain.”
Market malfeasance like that which RBC is charged with has been a growing concern in recent years. The two-year anniversary of the May 2010 Flash Crash is just over a month away, and regulators are still hunting for missing customer funds after the October 2011 collapse of commodities broker MF Global. Both have called into question the safety and transparency of markets and the firms that operate within them.
The CFTC is seeking civil monetary damages from RBC, and a permanent injunction against further violations.
For its part, RBC says it was in touch with the exchange prior to making any trades, and that such trades were permissible in 2005 and today. “Given no objection to the trading activity by either the exchange or the CFTC in 2005, it is absurd to now claim these trades were either fictitious or wash sales,” the firm says. “This lawsuit is meritless and we will rigorously defend ourselves against such baseless allegations.”
