The US Commodity Futures Trading Commission (CFTC) ordered Russia’s VTB Bank and its UK-incorporated subsidiary VTB Capital to jointly pay a $5 million civil monetary penalty for “unlawful conduct”.
According to the CFTC the two entities executed fictitious and noncompetitive block trades in (RUB/USD) futures contracts, which were cleared through the Chicago Mercantile Exchange (CME).
The US regulator found that between December 2010 and June 2013, VTB and VTB Capital executed on the CME over 100 block trades in RUB/USD futures contracts, with a notional value of approximately $36 billion. The trades were fictitious and were made by VTB to VTB Capital so VTB can transfer its cross-currency risk to its subsidiary, VTB Capital, at prices more favorable than VTB could have obtained from third-parties. VTB Capital would then hedge this cross-currency risk in OTC swaps with various international banks, allowing VTB and VTB Capital to accomplish through risk-free, non-arms-length transactions in the futures market what VTB was unable to accomplish through the swaps market.
According to the CFTC these fictitious block trades were done at not true and bona fide prices, in violation of the CEA. Furthermore, according to the Order, the block trade prices did not take into account the circumstances of the markets and the parties to the block trades and thus failed to comply with CME requirements; as a result, the trades were noncompetitive in violation of a CFTC Regulation.
Along with the fine, CFTC orders VTB Bank and VTB Capital to cease and desist from further violations of the CEA and CFTC regulations.
It also orders the two companies to institute, update, and/or strengthen their policies and procedures designed to detect, deter, discipline and correct any potential fictitious and noncompetitive trading on US markets that violates the Commodity Exchange Act (CEA) and a CFTC Regulation. VTB and VTB Capital are also required to conduct training addressing the ethics, compliance, and legal requirements with regard to fictitious or noncompetitive trading under the CEA and CFTC Regulations.
The CFTC conducted its investigation with the assistance of UK’s Financial Conduct Authority and acknowledges the cooperation from VTB and VTB Capital.
VTB Bank is one of Russia’s largest global financial providers. The majority shareholder of the VTB Bank is the Russian Government, which owns 60.9 percent of the voting shares. The Group’s largest subsidiaries in Russia are VTB 24, Bank of Moscow. VTB Bank’s UK subsidiary VTB Capital has branches in Singapore and Dubai.