Natixis agrees to $2.8M CFTC fine for oversight failures

Traders on Natixis’ New York-based interest rate derivatives desk (IRD desk) and equity derivatives flow and solution trading desk (FAST desk) mismarked their positions “for the purpose of either inflating profits and minimizing losses or to ‘smooth’ out returns,” from 2015-19, the CFTC said in a press release Tuesday. The agency said Natixis failed to properly monitor the activities of the traders, who were able to manipulate the firm’s internal recordkeeping and accounting system without being detected.

From 2015-18, a trader on the ISD desk allegedly mismarked the desk’s end-of-day U.S. LIBOR forward curve (closing curve). At its peak in 2018, the mismarkings overstated the desk’s profit and loss by $25 million and led to the bank filing inaccurate financial statements with the CFTC, according to the agency.

From 2017-19, several Natixis traders on the FAST desk “made certain manual adjustments to the bank’s internal trade booking systems” that, at its peak, overstated the desk’s profit and loss by $6 million. Those adjustments also led to inaccurate financial statements being filed with the CFTC.

Natixis cooperated with the investigation, the CFTC noted, leading to a decreased fine.

The CFTC also reached settlement with Blaise Brochard, the trader who mismarked positions at Natixis’ IRD desk in New York over three years. Brochard agreed to pay $250,000 and accepted a three-year ban on trading commodity interests, the agency said in a separate press release.

Compliance considerations: Natixis self-reported issues on its IRD desk to the National Futures Association and the CFTC’s Market Participants Division, which led to the CFTC’s investigation. During the probe, Natixis kept CFTC staff apprised of the progress of the firm’s internal investigation, made employees available for interviews, provided documents and information, and made presentations to agency staff, according to the CFTC’s order.

The firm also acted to remediate the issues found during the CFTC’s investigation, including developing new procedures for marking and surveillance of the closing curve, establishing a U.S.-based valuation committee to provide additional oversight on valuation matters, and implementing a “process that any requests for modification of trades would be made to a separate trade support function.” Natixis applied some of these remediations to its systems across other business lines, the order said.

In addition, Natixis fired two traders involved in the manipulation as well as a supervisor of one of those traders, according to the order.

A Natixis spokesperson said the company self-reported the issue and cooperated with the CFTC’s investigation.

“Natixis … has already implemented corrective actions aligned to swap market integrity. Natixis does not tolerate any form of misconduct,” the spokesperson said.

Editor’s note: This story was updated Sept. 8 to include comment from Natixis.