UPDATE: US commission imposes $5 mln penalty on Russia’s VTB Bank

(Adds VTB’s comment in last three paragraphs)

WASHINGTON, Sep 20 (PRIME) -- The U.S. Commodity Futures Trading Commission (CFTC) has imposed a U.S. $5 million penalty on Russia’s second largest bank VTB Bank and its unit VTB Capital for allegedly fictitious deals in rubles and U.S. dollars, the commission said in a statement late on Monday.

The CFTC “issued an order filing and simultaneously settling charges against banking institutions VTB Bank VTB, headquartered in St. Petersburg, Russia, and VTB Capital for executing fictitious and noncompetitive block trades in Russian ruble/U.S. dollar futures contracts, which were cleared through the Chicago Mercantile Exchange (CME),” the commission said.

“VTB Capital, a U.K.-incorporated bank, is 94% owned by a holding company that, in turn, is 100% owned by VTB,” the CFTC said.

According to the commission, VTB and VTB Capital executed over 100 block trades in ruble–U.S. dollar futures on the CME totaling about $36 billion between December 2010 and June 2013. VTB was unable to hedge its cross-currency risks due to requirements imposed on over-the-counter (OTC) swap counterparties in transactions with the bank, so it transferred its risk to 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,” the statement read.

“These block trades were fictitious sales, which caused prices to be reported or recorded by the CME that were 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,” the commission said.

VTB Bank said in a statement that the trades were carried out in line with rules of the CME and there have been no allegations against the bank.

“About a year ago the commission filed a lawsuit against one of the western banks charging it with serious claims for several transactions. Most likely, this precedent made the commission review its practices of executing this kind of deals at the stock exchange and consequently impose a ban on address operations within one group. This ban has applied to all of the banks working in the U.S.,” the bank said.

After several meetings with VTB Capital, the CFTC concluded that the bank “was working strictly in accordance with the appropriate market practices at that time,” but decided to not acknowledge activity on some deals due as correct to revision of its rules. Taking into account that the CME earlier allowed these transactions and that VTB cooperated with the commission, “the bank was fined the minimum amount possible.”

End