ROYAL Bank of Canada was sued by US regulators over claims that the Toronto-based lender engaged in illegal futures trades worth hundreds of millions of dollars to garner tax benefits tied to equities.
Canada's biggest bank made false and misleading statements about "wash trades" from 2007 to 2010 in which affiliates traded among themselves in a way that undermined competition and price discovery on the OneChicago LLC exchange, the Commodity Futures Trading Commission said yesterday in a complaint filed in Manhattan federal court.
"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," CFTC enforcement director David Meister said. "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."
The lawsuit is meritless and the bank intends to defend against the allegations, said Kevin Foster, a Royal Bank spokesman.
"Before we made a single trade, we proactively contacted the exchange to seek its guidance," Foster said. "These trades were fully documented, transparent, and reviewed by both the CFTC and the exchanges, and for the next several years were monitored by them." The trading was permissible under the CFTC's published guidance, Foster said in the statement, which also described the lawsuit as "not a financially material event to RBC."
Royal Bank traded at $58.50 in US after-markets trading yesterday, down 1.2 per cent from the US market close.