Regulator accuses RBC of massive trading scheme

Mon Apr 2, 2012 7:39pm EDT
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By Alexandra Alper

WASHINGTON (Reuters) - The futures regulator accused the Royal Bank of Canada of running a "trading scheme of massive proportion" 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 CFTC said the scheme lasted from at least June 2007 to May 2010 and involved hundreds of millions of dollars in trades.

The lawsuit, filed on Monday in the Southern District of New York, also said RBC concealed and made false statements about its wash trading scheme to the futures exchange CME Group Inc.

Wash trades, the simultaneous and offsetting purchase and sale of a contract, are banned under U.S. 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."   Continued...

A Royal Bank of Canada (RBC) sign is seen in downtown Toronto, March 3, 2011. REUTERS/Mark Blinch