Royal Bank of Canada hit by CFTC’s futures lawsuit

City A.M. Reporter
THE US futures regulator yesterday accused the Royal Bank of Canada of running a “massive” multi-hundred-million-dollar trading scheme to gain lucrative Canadian tax benefits.

The Commodity Futures Trading Commission’s civil lawsuit alleges that a small group of senior RBC employees created and managed a “wash trading” strategy in which they improperly coordinated to allow subsidiaries of the bank to buy and sell stock futures without taking a position in the market.

The suit also said RBC concealed and made false statements about its wash trading scheme to the futures exchange CME.

Wash trades are banned under US futures law. The CFTC did not name any RBC employees in its complaint.

RBC called the allegations “absurd” and said the CFTC and the exchanges reviewed and monitored the trades in question.

“RBC’s trading was permissible in 2005, and it is permissible today under the CFTC’s published guidance,” Elisa Barsotti, a spokeswoman for RBC said in a statement.

“This lawsuit is meritless and we will rigorously defend ourselves against such baseless allegations.”

The CFTC said the “wash trading scheme of massive proportion” occurred from at least June 2007 to May 2010.

It said the trades in narrow-based stock index futures and single stock futures were pre-arranged among RBC and two subsidiaries and then executed as “block” trades on OneChicago.

The goal of the trades was to earn an undisclosed amount in Canadian tax credits, while limiting market exposure, the CFTC’s complaint alleges.

The agency is seeking to be seen as a stronger enforcer, especially as it probes the collapse of futures brokerage MF Global.

An MF Global bankruptcy trustee yesterday asked a judge to release $25m in insurance money to pay defence costs for Jon Corzine and other former MF Global officers facing civil lawsuits over the broker's October collapse.

Customers of MF Global’s broker-dealer have argued they are entitled to the funds to help fill an estimated $1.6bn hole in their trading accounts.