The Commodity Futures Trading Commission has issued subpoenas toICAP Plc brokers and as many as 15 Wall Street banks as part of aninvestigation into possible price manipulation of benchmarkinterest-rate swaps, according to people familiar with thematter.

The CFTC plans to interview about a dozen current and formerbrokers at ICAP's Jersey City, New Jersey, office as well asdealers that contribute prices used to set the daily ISDAfix swaprates, said three of the people, who asked not to be named becausethe matter is private. The regulator is probing whether ICAPbrokers are colluding with dealers who stand to profit frominaccurate quotes, including failing to update published marketprices after trades occur, one of the people said.

The ISDAfix levels, which the Federal Reserve includes in adaily report on money-market rates, are used by everyone fromcorporate treasurers to money managers to determine borrowing costsand to value much of the $379 trillion of outstanding interest-rateswaps globally.

The CFTC is probing the swaps trading as it works with Europeanregulators in the rate-rigging scandal surrounding the Londoninterbank offered rate. ICAP brokers in London have passed onrequests from dealers asking rate-setters at rival banks to makefavorable submissions, e-mails released as part of the Europeanprobe show. UBS AG, Royal Bank of Scotland Group Plc and BarclaysPlc have paid $2.6 billion in fines for rigging Libor rates.

Stephanie Allen, a CFTC spokeswoman, said the commission doesn'tcomment on enforcement issues. Brigitte Trafford, an ICAPspokeswoman, declined to comment.

ICAP, the biggest broker of interest-rate swaps between banks,is paid commissions based on the size of the trades it matches. Thefirm's rate-swap desk in Jersey City is nicknamed “Treasure Island”because of the size of those commissions, according to three peoplefamiliar with the matter. On average, $1.4 trillion of transactionswere traded daily on ICAP's systems in 2012, the company said inits annual report.

Like Libor, which is the rate at which banks say they would lendto each other, ISDAfix is derived from a process where 15 bankssubmit bids and offers for swaps in various currencies anddenominations, according to the website of the International Swapsand Derivatives Association, which created the rate in 1998 withthe predecessors of Thomson Reuters Corp. and ICAP.

The rates are distributed by Reuters, Telekurs and Bloomberg LP,the parent company of Bloomberg News, according to the ISDAwebsite.

Price Screens

The ISDAfix rate and intraday trading levels that ICAP displayson an electronic screen known as 19901 are used by corporatetreasurers, asset managers and other market participants as ameasure of wholesale funding costs.

About 6,000 companies and financial firms subscribe to thepricing service, according to ICAP. Values published by it areaccepted as a legal price by which swaps traders can terminatecontracts or to mark the value of positions, according to ISDA.

One potential source of price manipulation being probed by theCFTC is tied to ICAP brokers not updating the rate-swap price onthe 19901 screen after they facilitate a trade between two banks,according to one of the people and a former ICAP broker in theJersey City rate-swaps group who asked not to be identified forfear of retribution.

ICAP enters those prices manually onto the screen, and dealerstell the brokers not to put trades into the system until all theirbusiness in a transaction is done, which skews current marketprices, according to the former broker, who said he witnessed suchactivity first-hand.

The contributors to ISDAfix are Bank of America Corp., Barclays,BNP Paribas SA, Citigroup Inc., Credit Suisse AG, Deutsche Bank AG,Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase &Co., Mizuho Financial Group Inc., Morgan Stanley, Nomura HoldingsInc., Royal Bank of Scotland, UBS and Wells Fargo & Co.,according to ISDA.

Representatives at the banks declined to comment.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.