14 DAY TRIAL // The Royal Bank of Canada (RBC) is accused by the US Commodity Futures Trading Commission (CFTC) of conducting a wash sale scheme from which it gained hundreds of millions of dollars. The financial institution is also suspected of making false statements and hiding information.
According to the CFTC, the RBC traded hundreds of millions of dollars’ worth of futures contracts with two of its subsidiaries between June 2007 and May 2010.
The main purpose of the scheme was to create lucrative Canadian tax benefits by holding the securities of certain organizations in its accounts.
RCB looked for companies that owned stocks that would generate a tax benefit and then traded them with a subsidiary. In the process, narrow based stock index (NBI) futures and single stock futures (SSF) contracts were also traded.
The way in which the futures were transactioned allowed the Canadian company to obtain tax benefits.
The complaint filed by the CFTC also accuses the organization’s representatives of falsely stating that the SSF trading was being conducted at arm’s length, hiding the fact that everything was cleverly manipulated by RBC senior employees.
“A fundamental purpose of the futures markets is to provide an arm’s-length mechanism for market participants to discover prices and shift risks associated with products traded in those markets,” David Meister, the director of the CFTC’s division of enforcement, revealed.
“As we allege, RBC not only designed and executed a wash sale scheme that undermined that purpose, it went a step further and misled the exchange into believing that its conduct was lawful.
“Today’s action should make clear that the CFTC will not hesitate to bring charges against even the most sophisticated market participants who unlawfully exploit the futures markets for their own gain.” Note. My Twitter account has been erroneously suspended. While this is sorted out, you can contact me via my author profile or follow me at @EduardKovacs1