Nomura Trader Gamed Interest-Rate Swap Spreads, CFTC Claims

Nomura’s former head of non-yen rate trading was sued by the U.S. Commodity Futures Trading Commission for allegedly manipulating the price of U.S. dollar interest-rate swap spreads.

John Patrick Gorman III “engaged in this scheme in order to benefit the bank” in a transaction with a bond issuer, according to a lawsuit filed in U.S. District Court in Manhattan on Monday. The suit didn’t identify the bank or issuer by name. Gorman is employed by Nomura but is no longer trading, according to a person with knowledge of the matter, who asked not to be identified.

Gorman, who is now in the U.K. but worked in Tokyo at the time of the alleged conduct, denied the CFTC’s claims through a statement by his lawyer, Sean Hecker. A Nomura spokesman declined to comment on the allegations.

According to the CFTC, the bond issuer entered into a rate swap transaction with a Japanese affiliate of Nomura in connection with a dollar-denominated bond issuance with a 10-year maturity. The bond issue and the swap were both priced on Feb. 3, 2015, using data from a screen that showed prices from an electronic trading platform.

Gorman timed his trading to artificially move down the price of 10-year swap spreads, which was then used to price the issuer swap, resulting in profits for Nomura, the CFTC claims. It alleges that in 2019, during a CFTC investigation into the matter, Gorman destroyed communications about the trading on the WhatsApp messaging service.

“The trades at issue did not violate any rules around market manipulation,” Hecker said. “Such pre-hedging trades are a common risk-management strategy that is considered an industry best practice.”

The CFTC in 2019 filed a similar case against the former head of HSBC Holdings Plc’s North American interest rates business, Christophe Rivoire. The commission claimed Rivoire helped manipulate the price of an interest-rate swap between the bank and a bond issuer to make the transaction more profitable for HSBC.

Rivoire denied the allegations at the time and is fighting them in court.

The case is Commodity Futures Trading Commission v. Gorman, 21-cv-00870, U.S. District Court, Southern District of New York (Manhattan).

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