By Rita Trichur And Maria Armental
Royal Bank of Canada will pay a $35 million penalty for engaging
in illegal futures trading with itself over a three-year period in
one of the biggest such cases brought by regulators.
The Commodity Futures Trading Commission, which filed a
complaint against RBC in 2012, announced late Thursday that a judge
with the U.S. District Court for the Southern District of New York
levied the civil penalty against RBC, Canada's second-largest bank
by assets.
The penalty was for engaging in more than 1,000 illegal wash
sales, fictitious sales, and noncompetitive transactions, between
June 1, 2007 and May 31, 2010, according to court documents.
A spokesman for RBC said the bank remains "committed to
complying with our regulators' requirements. The settlement is in
the best interests of our clients and shareholders, recognizing
that continued litigation is costly and uncertain." He declined to
comment further.
The wash trade scheme, in which RBC and its subsidiaries acted
as both buyers and sellers, was designed to glean tax benefits, the
court found. Such trades, which evade the basic pricing mechanisms
of financial markets, can be used to generate a commission,
improperly boost trading volume or influence prices.
"They involved the trading of the same quantity of the same
futures contracts at the same price and time, and therefore
achieved a wash result for RBC," the CFTC said.
The CFTC said in its statement that the court found that RBC
"knowingly executed" 1,026 such wash sales and other "fictitious
sales" involving narrow-based stock-index futures and single-stock
futures contracts, and that the trades were designed by "senior RBC
personnel,."
RBC was accused of routing the transactions through OneChicago,
an electronic futures-trading exchange in Chicago that is partly
owned by CME Group Inc. Representatives from CME couldn't
immediately be reached for comment.
The court also entered a consent order for a permanent
injunction which forces the Toronto-based bank to comply with the
CFTC's regulations on wash sales to prevent future violations.
Write to Rita Trichur at rita.trichur@wsj.com and Maria Armental
at maria.armental@wsj.com
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