|Interest rate swap benchmark
ISDAFIX is a benchmark for annual swap rates for swap transactions. It is a screen service providing average mid-market swap rates daily for six major currencies at selected maturities. The rates are based on a midday and, in some markets, end-of-day polling of mid-market rates.
The ISDAFIX levels are used by all kinds of market participants, from corporate treasurers to money managers, to determine borrowing costs and to value much of the $379 trillion of outstanding interest-rate swaps traded around the world. The U.S. Federal Reserve includes ISDAFIX in a daily report on money-market rates. ISDAFIX is also used to value derivatives trades known as swaptions, which are options on rate swaps.
On August 1, 2014, the International Swaps and Derivatives Association (“ISDA”), administrator of ISDAFIX since its inception, turned over administration of ISDAFIX to the ICE Benchmark Administration. The move was made as part of the effort to bolster the integrity of the rate after investigations into potential manipulation of Isdafix and other benchmarks. No charges have been filed so far regarding Isdafix.
In January 2015 ICE announced that in mid-February it would switch the way it calculates ISDAFIX in an attempt to bolster market confidence. The exchange said it would change to publishing rates based on tradeable quotes rather than submissions by a panel of banks. ISDAFIX was previously determined by a process in which 15 banks submitted bids and offers for swaps in various currencies and denominations. The contributors to ISDAFIX were 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 Holdings Inc., Royal Bank of Scotland, UBS and Wells Fargo & Co. (WFC), according to ISDA.
ISDA established ISDAFIX in 1998 in co-operation with Reuters (now Thomson Reuters) and Intercapital Brokers (now ICAP plc.) ISDAFIX currently provides rates for euro (EUR), Hong Kong dollar (HKD), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF) and U.S. dollar (USD). ISDAFIX also provides USD swap spreads.  ISDAFIX rates are displayed on Thomson Reuters, Bloomberg and Telekurs. ICAP plc has managed the benchmark since its inception, but will step aside from its role in 2014 as the benchmark moves from a polling methodology to one based on executable prices.
On January 27, 2014, ISDA announced the first stage in its two-phased process for moving to an automated, market-based ISDAFIX rate setting. Planned changes such as a clarification of the ISDAFIX definition to emphasize the use of executable prices, adoption of a code of conduct and an oversight committee are intended to bring ISDAFIX in line with IOSCO's Principles for Financial Benchmarks, April 2013. Additionally, under the planned changes, inter-dealer broker ICAP will give up its role in the rate-setting process for U.S. dollar-based rates and Thomson Reuters, which previously served as collection agent for non-USD rates, will handle the entire process.
In April 2013, several news outlets reported that the CFTC was investigating possible manipulation of the ISDAFIX rates and had issued subpoenas to ICAP and as many as 15 Wall Street banks. In August 2013, Bloomberg reported that U.S. investigators had uncovered evidence that banks made millions in trading profits at the expense of companies and pension funds by manipulating a the ISDAfix benchmark.
The ISDAFIX investigation stemmed from the LIBOR manipulation scandal, in which fines were assessed and charges brought against numerous banks and bank employees for submitting inaccurate rate quotes in order to skew the published rate. The LIBOR investigation led to a reassessment of other financial benchmarks, including ISDAFIX. In April 2013, IOSCO published its Principles for Financial Benchmarks.
As of June 2018, the CFTC has imposed around $6 billion in penalties against banks and brokers to address the rigging of benchmarks such as Libor and ISDAFIX.
In September of 2014, Barclays Plc, Bank of America Corp., Citigroup Inc. and 10 other banks were sued by the Alaska Electrical Pension Fund, who accused the banks of conspiring to manipulate ISDAfix. The fund claimed the banks colluded to set ISDAfix at artificial levels that allowed them to manipulate payments to investors in the derivatives, affecting trillions of dollars of financial instruments tied to the benchmark.
On May 20th, 2015 the CFTC fined Barclays PLc $115 million for its role in manipulating the ISDAFIX benchmark.
In June 2015 the Department of Financial Services, New York’s banking regulator, launched an investigation into the ISDAFIX benchmark related to the suspected manipulation of US interest rate swaps. The DFS investigation involves a number of the world's largest banks, including BNP Paribas, Credit Suisse, Barclays and Deutsche Bank. The agency has jurisdiction over banks that have a New York license, which includes many European banks.
In addition, the German regulator BaFin found that a New York-based Deutsche Bank trader had tried to rig ISDAFIX in 2010 to give the bank an edge over its fund management client Pimco.
In June of 2018, the CFTC said JPMorgan Chase Bank had agreed to pay a $65 million civil penalty to settle charges that it attempted to manipulate the ISDAfix benchmark swap rates between 2007 and 2012.
Changes to the Benchmark, 2014
In January 2014, ISDA announced changes to the ISDAFIX methodology. Among the changes:
- Clarifation of the definition of ISDAFIX to emphasize that contributing banks should use executable bid/offer rates;
- Establishing an ISDAFIX Code of Conduct and an ISDA Oversight Committee, which will address internal governance, systems and controls;
- Suspension or discontinuation of the rate calculation for currencies and tenors of ISDAFIX with insufficient liquidity in the underlying swap market; and
- Stronger checks on submission rates for validation.
Thomson Reuters, which previously served as collection agent for non-USD rates, will handle the entire process.
Phase two includes a transition to an automated model that utilizes live prices from multilateral trading facilities (MTFs).
For more information, visit the financial benchmark regulation page in MarketsReformWiki.
- CFTC Said to Subpoena ICAP Brokers, Dealers on Swap Prices. Bloomberg.
- ICE to change Isdafix calculation. The Financial Times.
- ISDAFIX. ISDA.
- Regulator extends interest rate manipulation probe. The Financial Times.
- ISDA Announces Key Steps in ISDAFIX Transition. ISDA.
- UK broker ICAP to lose role in ISDAfix swaps benchmark. Reuters.
- ICAP Poised to Lose Central Role in Helping Set ISDAfix. Wall Street Journal.
- Swaps Probe Finds Banks Rigged Rate at Expense of Retirees. Bloomberg News.
- Barclays, BofA, Citigroup Sued for ISDAfix Manipulation. Bloomberg.
- CFTC takes aim at Isdafix manipulation with Barclays case. Financial Times.
- CFTC orders JPMorgan to pay $65 million to settle swap rate manipulation charge. Reuters.
- U.S. CFTC orders BNP Paribas to pay $90 million penalty for rate-rigging. Reuters.
- ISDA Announces Key Steps in ISDAFIX Transition. ISDA.