UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

In the Matter of: 

HSBC Bank USA, N.A., 

Respondent.

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CFTC Docket No. 23-26

ORDER INSTITUTING PROCEEDINGS PURSUANT TO 

SECTION 6(c) AND (d) OF THE COMMODITY EXCHANGE ACT, MAKING 

FINDINGS, AND IMPOSING REMEDIAL SANCTIONS

I. INTRODUCTION

The Commodity Futures Trading Commission (“Commission”) has reason to believe that 

at various times from in or about March 2012 to July 2020 (“Relevant Period”), HSBC Bank 

USA, N.A. (“HSBC” or “Respondent”) violated Sections 4c(a)(5)(C), 4s(h)(1)(A), (B) and (D), 

and 6(c)(1), 7 U.S.C. §§ 6c(a)(5)(C), 6s(h)(1)(A), (B), (D), 9(1), of the Commodity Exchange 

Act (“Act”), 7 U.S.C. §§ 1–26, and Regulations 1.31(b)(2), 23.202(a)(1) and (b)(1), 23.410(a)(3) 

and (c)(1)(ii), 23.433, 23.602, and 180.1(a)(1)-(3), 17 C.F.R. §§ 1.31(b)(2), 23.202(a)(1), (b)(1), 

23.410(a)(3), (c)(1)(ii), 23.433, 23.602, 180.1(a)(1)-(3) (2022), of the Commission Regulations 

(“Regulations”) promulgated thereunder. Therefore, the Commission deems it appropriate and 

in the public interest that public administrative proceedings be, and hereby are, instituted to 

determine whether Respondent engaged in the violations set forth herein and to determine 

whether any order should be issued imposing remedial sanctions. 

In anticipation of the institution of an administrative proceeding, Respondent has 

submitted an Offer of Settlement (“Offer”), which the Commission has determined to accept. 

Without admitting or denying any of the findings or conclusions herein, Respondent consents to 

the entry of this Order Instituting Proceedings Pursuant to Section 6(c) and (d) of the Commodity 

Exchange Act, Making Findings, and Imposing Remedial Sanctions (“Order”) and acknowledges 

service of this Order.1

1 Respondent consents to the use of the findings of fact and conclusions of law in this Order in this 

proceeding and in any other proceeding brought by the Commission or to which the Commission is a party or 

claimant, and agrees that they shall be taken as true and correct and be given preclusive effect therein, without 

further proof. Respondent does not consent, however, to the use of this Order, or the findings or conclusions herein, 

as the sole basis for any other proceeding brought by the Commission or to which the Commission is a party or 

claimant, other than: a proceeding in bankruptcy or receivership; or a proceeding to enforce the terms of this Order. 
2 

II. FINDINGS 

The Commission finds the following: 

A. SUMMARY 

Between March 2012 and 2015, on multiple occasions, traders at HSBC engaged in and 

attempted to engage in manipulative and deceptive trading in financial products in connection 

with interest rate swaps HSBC entered into with bond issuers (“issuer swaps”). The issuer swaps 

were priced in part based on prices that were displayed on pricing screens controlled by 

interdealer broker firms. HSBC traders intentionally traded at the broker firms controlling the 

relevant screens during telephonic pricing calls in which the bond issuances, and the related 

issuer swaps, were priced, and HSBC traders structured their trading intentionally to move prices 

for the relevant financial instruments on these screens. HSBC traders engaged in this conduct to 

increase the profitability of issuer swaps for HSBC, to the detriment of HSBC’s counterparties. 

Moreover, HSBC traders from time to time deliberately traded at worse prices than they 

otherwise could have in order to achieve the objective of moving the pricing screens. At times, 

supervisors and senior management at HSBC or its affiliates knew of, and even directed, HSBC 

traders to engage in this conduct. This conduct not only constituted manipulation and attempted 

manipulation, but also violated swap dealer business conduct rules. As a swap dealer, HSBC 

failed to appropriately supervise this trading. 

Further, from September 2015 to April 2016, the trader who supervised HSBC’s U.S. 

dollar swap desk engaged in spoofing in the voice brokered swaps market on a number of 

occasions. The trader would provide bids or offers to a voice broker which the trader did not 

intend to execute; instead, the trader intended to cancel these bids and offers before execution. 

The trader engaged in this conduct to control prices on the broker’s pricing screen. As a swap 

dealer, HSBC failed to appropriately supervise this trading. 

Finally, from at least March 2020 to July 2020, HSBC failed to make and keep certain 

audio recordings, as it was required to do as a swap dealer. 

In accepting Respondent’s Offer, the Commission recognizes the substantial cooperation 

of HSBC with the Division of Enforcement’s (“Division”) investigation of this matter. The 

Commission also acknowledges Respondent’s representations concerning its remediation in 

connection with this matter. The Commission’s recognition of Respondent’s substantial 

cooperation and appropriate remediation is further reflected in the form of a reduced penalty. 

B. RESPONDENT 

HSBC Bank USA, N.A., is a national banking association headquartered in Tysons, 

Virginia. HSBC has been provisionally registered with the Commission as a swap dealer since 

December 31, 2012. 

 

Respondent does not consent to the use of the Offer or this Order, or the findings or conclusions in this Order, by 

any other party in any other proceeding. 
3 

C. FACTS 

1. Manipulation Related to Swaps with Bond Issuers 

Between March 2012 and 2015, on multiple occasions, traders at HSBC2 engaged in and 

attempted to engage in manipulative trading in financial products to benefit HSBC in separate 

interest rates swaps HSBC or its affiliates entered into with bond issuers. At times, supervisors 

and senior management at HSBC or its affiliates were aware of this conduct, and one HSBC 

senior manager (the “HSBC Head of North American Rates”3) directed a trader to engage in 

manipulative trading. 

a. Background 

During this period, HSBC or its affiliates sometimes played a role in bond issuances. 

When a bond issuer issues a bond paying a fixed rate of interest, the issuer is exposed to interest 

rate risk—namely, that prevailing interest rates will rise or fall over the life of the bonds while 

the issuer’s obligation to pay interest to bond investors remains fixed. To manage this interest 

rate risk, bond issuers may choose to enter into interest rate swaps near the time of their bond 

issuances, which help to offset the risk. These interest rate swaps are often referred to as issuer 

swaps. From time to time, when HSBC or one of its affiliates played a role in a bond issuance, 

HSBC or the affiliate was also selected by the bond issuer to provide the issuer swap. 

Bond issuances and issuer swaps can be priced in a variety of ways. A common way that 

such transactions are priced is on a pricing call. Typically, representatives from the issuer and 

banks involved in the bond issuance will participate in the pricing call. During the pricing call 

individuals—frequently traders—from the bank providing the issuer swap will quote, or “spot,” 

the current prices of relevant financial instruments. This is often done twice; first during a 

practice “dry run,” and then immediately again during the “live pricing.” The prices quoted 

during the live pricing are then used to price the bond issuance and the issuer swap. For the 

transactions where HSBC provided the issuer swap, relevant financial instruments included U.S. 

Treasuries, swap spreads,4

 and basis swaps.5 

 

2

 HSBC and its affiliates no longer employ the traders whose conduct is specifically described in this Order. 

 

3

 HSBC and its affiliates no longer employ the HSBC Head of North American Rates; he was employed by 

HSBC or an affiliate until December 2018. 

4

 A swap spread is a package transaction consisting of a U.S. dollar fixed-for-floating interest rate swap and 

U.S. treasury securities of the same maturity. The price of a swap spread is expressed as the difference, or spread, in 

basis points between the U.S. Treasury yield for the relevant maturity and the prevailing market interest rate on the 

U.S. dollar fixed-for-floating interest rate swap of the same maturity. A basis point is one-one hundredth of one 

percent; for example, a change in interest rates from 2.25 percent to 2.23 percent is a two-basis point change. 

5

 As relevant here, a basis swap is an interest rate swap where both parties pay floating rates of interest (for 

example, a swap of the six-month U.S. dollar Libor rate for the three-month U.S. dollar Libor rate). The price of a 

basis swap is also expressed in basis points. 
4 

By agreement, during pricing calls the relevant prices are often quoted from screens 

published by broker firms, including swap execution facilities. These screens display prices 

from the relevant broker firm, and trading at the relevant broker firm can affect the prices 

displayed on the screens. 

The prices displayed on the screens, and quoted during the pricing call, could have an 

impact on how profitable the issuer swaps were for HSBC. HSBC traders were aware of this, 

and thus, were aware that if they could move the prices for the relevant financial instruments just 

before the prices were quoted, they could increase the profitability of these transactions for 

HSBC. 

b. HSBC Traders’ Manipulative Conduct 

Aware of how they could increase the profitability of issuer swaps for HSBC, HSBC 

traders in fact moved and attempted to move the prices for the relevant financial instruments 

during pricing calls to benefit HSBC on multiple occasions from March 2012 to 2015. In the 

transactions relevant here, HSBC generally benefitted if lower prices were displayed on the 

screens.6

 

When HSBC traders sought to manipulate the prices of financial instruments to benefit 

HSBC on its swaps with bond issuers, their conduct and trading often followed a similar pattern. 

First, the traders would listen to the pricing call, to gauge when it would be time for HSBC to 

quote the price of the relevant financial product. At times, the traders would listen to the pricing 

call even when they were not going to participate in the call or quote the relevant price 

themselves. Next, the traders who were listening to the pricing call, either because they needed 

to quote the relevant price or not, would frequently begin trading shortly before the crucial 

moment at which HSBC would be asked to quote the price of the relevant financial product. 

They would conduct this trading at the broker firm whose pricing screen was being used to price 

the bond issuance and issuer swap, and would avoid trading at other broker firms—even when 

better prices were available at the other firms. Further, the traders would exhibit particular focus 

on moving the relevant price at exactly the moment when HSBC quoted the price during the live 

pricing. Often, the traders would stop trading immediately after the price was quoted and 

accepted on the pricing call. 

HSBC employees openly discussed their manipulative trading in connection with issuer 

swaps, frequently using plain, blunt language. In one issuer swap transaction, the HSBC Head of 

North American Rates directed a trader to “push the screen as much as we can before the 

 

6

 Because manipulating prices to HSBC’s benefit made the issuer swaps more profitable to HSBC, one 

consequence of manipulating, or planning to manipulate, prices during the pricing call was that HSBC would be able 

to offer the issuer a (seemingly) better price for the issuer swap as the issuer was considering which bank to select to 

provide the issuer swap. At times, HSBC traders articulated how this worked. One swaps trader (“Swaps Trader 

1”) described how, if another bank sold the relevant tenor of swap spreads “ahead of the pricing,” that bank might be 

able to “push[] the mkt [market] down a little so they could show a ‘mid’ level [i.e., a price for the issuer swap] that 

was already in the money.” Another trader (“Swaps Trader 2”) noted that “[s]ome guys [at other banks] will 

indicate tighter to mid [i.e., the price for the issuer swap] because they plan on manipulating screens lower.” Swaps 

Trader 2 also noted that if another bank “ploughs [] spreads down” the mid-level shown on the screen would be 

“artificially low.” 
5 

pricing”; the HSBC Head of North American Rates also discussed with another senior manager 

at HSBC “push[ing] the market” for U.S. Treasuries and swap spreads, and connected “how 

much we can push the market” to the profitability of the issuer swap for HSBC. Traders also 

described manipulation or potential manipulation using terms such as “hitting spreads down,” 

“hit[ting] the screen to avoid a los[s],” “hit[ting] the sht [sic] out of it,” “trying to get this screen 

down,” needing to “move [the] screen,” and “pushing [basis swaps] down.” Both swap and U.S. 

Treasury traders used the term “ammo” to describe the volume of swaps or U.S. Treasuries they 

would have available to trade when attempting to move prices of the relevant financial products. 

HSBC traders employed a similar manipulative trading pattern across multiple 

transactions. In one transaction that took place in 2014, the HSBC swaps trader (“Swaps Trader 

3”), who was listening to the pricing call, began selling at the relevant broker firm during the dry 

run. As the critical moment for quoting the relevant rate in the live pricing approached on the 

call, Swaps Trader 3 directed his broker to “sell a billion,” thus moving the price on the relevant 

screen down. When Swaps Trader 3 was asked on the pricing call for the quote of the price, he 

paused just long enough to switch back to his line with his broker to reiterate the broker should 

“hit ‘em all down,” before providing the lower quote on the pricing call. After the lower level 

was agreed to on the pricing call, Swaps Trader 3 told his broker he would now be willing to sell 

at a higher level. 

In another transaction from 2014, an HSBC trader (“Swaps Trader 4”) was listening to 

the pricing call. Swaps Trader 4 began selling basis swaps at the relevant broker firm just before 

the start of live pricing, and then he momentarily stopped. His broker informed him that if he 

was “out of the way,” i.e., no longer trading, the broker’s pricing screen would go up. Swaps 

Trader 4 immediately told the broker to keep selling, thus keeping the price lower until he could 

quote it a few seconds later on the pricing call. Further, simultaneously with his conversation 

with his broker, Swaps Trader 4 also sent the broker messages via chat, repeatedly indicating to 

the broker that the broker should move the pricing screen down. 

To advance their manipulative schemes, HSBC traders sometimes traded at worse prices 

than they otherwise could have traded. In the same transaction from 2014, Swaps Trader 4 

moved prices down on the relevant pricing screen by selling basis swaps at the broker firm that 

controlled that screen at a price of 9.25 basis points, even though at the time he could have sold 

at another broker firm for the higher price of 9.375. Afterwards, a broker from the second firm 

asked Swaps Trader 4 why someone would choose to sell at a worse price (9.25 instead of 

9.375). Swaps Trader 4 told the broker that it was because “it was a deal pricing” and “people 

have their reasons.” The broker responded, “Oh. I guess they have to get screens down and 

what have you?” and Swaps Trader 4 agreed. 

Likewise, during a 2015 transaction, Swaps Trader 1 started selling the relevant swap 

spreads at a price of 12 basis points just as the final part of the pricing call began, moving the 

relevant screen down from 12.25 to 12 basis points. As Swaps Trader 3 began to quote the price 

of 12 basis points on the pricing call, the broker told Swaps Trader 1 that Swaps Trader 1 was 

“being lifted” and therefore he could sell at a higher price. Swaps Trader 1 told the broker he 

wouldn’t sell at the higher price and he wanted “to hit back down,” in other words, he wanted to 

continue selling at the lower price instead of the higher price. Consistent with the pattern of 
6 

manipulative trading, Swaps Trader 1 stopped trading altogether as soon as the lower price of 12 

was confirmed on the pricing call. 

HSBC traders also sometimes engaged in non-trading conduct that helped their 

manipulative schemes. For instance, in a 2014 transaction discussed above, Swaps Trader 3 

engaged in manipulative trading in swap spreads to benefit HSBC on the issuer swap, and in 

addition HSBC’s U.S. Treasury trader intentionally quoted a U.S. Treasury price on the pricing 

call that was simply wrong and had not traded in the market during the pricing call. The price 

which was quoted was better for HSBC than the price that was actually trading in the market. 

Afterwards, individuals at HSBC noted that bond purchasers were “complaining” and “v[ery] 

pissed” about the quote, and that one customer had complained that the fact that a price that had 

not traded in the market had been quoted was “criminal.” 

Similar conduct took place in the 2012 transaction in which the HSBC Head of North 

American Rates directed a trader (“Swaps Trader 5”) to “push the screen as much as we can 

before the pricing.” After receiving that direction, Swaps Trader 5 contacted a broker at the 

relevant firm ahead of time and told the broker that he would “need to move” the broker’s screen 

in connection with an upcoming pricing. During the pricing call in the 2012 transaction, Swaps 

Trader 5 demanded multiple times that the broker move the screen down, in the direction that 

would benefit HSBC, and threatened to stop using the broker’s firm in the future if the broker did 

not move the screen. Moreover, although the HSBC Head of North American Rates knew that 

Swaps Trader 5 was trying to get the broker firm to move the relevant pricing screen, and 

although he had directed Swaps Trader 5 to “push the screen as much as we can before the 

pricing,” he falsely told the issuer that “Obviously we are not controlling the screen.” 

c. Supervision 

Supervisors and senior managers at HSBC and its affiliates were at times aware of 

manipulative trading by their employees, and in at least one transaction the HSBC Head of North 

American Rates directed a trader to engage in manipulative trading. 

This is illustrated by the 2012 transaction described above. There, the HSBC Head of 

North American Rates directed Swaps Trader 5 to “push the screen as much as we can before the 

pricing,” directed Swaps Trader 5 when to begin trading during the pricing call, and was present 

on the desk while Swaps Trader 5 engaged in manipulative trading as a result of his direction to 

“push the screen.” Further, before the transaction, the HSBC Head of North American Rates 

discussed openly with another senior manager at HSBC how “push[ing] the market” for U.S. 

Treasuries and swap spreads could lead to a more profitable issuer swap for HSBC; the second 

senior manager noted that how much they could push the market depended in part on when the 

issuer swap was priced. 

Despite the fact that senior managers at HSBC were aware of manipulative trading by at 

least 2012, HSBC traders continued to trade to manipulate and attempt to manipulate prices of 

financial instruments to benefit HSBC in its swaps with bond issuers through 2015. Senior 

managers did not report this conduct internally within HSBC, or take steps to end it. 
7 

Further, although HSBC traders and executives openly discussed this manipulative 

trading on HSBC’s electronic communications systems (using terms like “push the screen,” 

“ammo,” and even the phrase “[s]ome guys [at other banks] will indicate tighter to mid because 

they plan on manipulating screens lower”), and on HSBC’s recorded phone lines, these 

discussions were not flagged by any type of surveillance of communications at HSBC. Nor was 

the trading around these transactions flagged by any system of trade surveillance. 

Finally, during the period March 2012 through 2015, HSBC did not have a policy that 

directly addressed whether and under what circumstances it was appropriate for traders to trade 

ahead of pricings.7 

2. Spoofing 

On a number of occasions from September 2015 to April 2016, the supervisor of HSBC’s 

U.S. dollar swap desk (the “USD Swap Desk Head”8) engaged in spoofing in the voice brokered 

swaps market on a swap execution facility (“SEF”). The USD Swap Desk Head would provide 

bids or offers to a voice broker at the SEF which the trader did not intend to execute. Instead, the 

USD Swap Desk Head intended to cancel these bids and offers before execution. 

The USD Swap Desk Head engaged in this conduct in order to control prices on the 

pricing screen which reflected prices of swap products available at the SEF. In one conversation 

with a broker at the SEF, the USD Swap Desk Head told the broker he would use bids and offers 

to prevent the pricing screen from moving in ways he, the USD Swap Desk Head, disagreed 

with, telling the broker “I’m going to block it, I’ll block it every time.” Among themselves, 

brokers at the SEF referred to certain of the USD Swap Desk Head’s bids and offers as “block 

price[s].” 

An example of this conduct occurred in December 2015, when the USD Swap Desk Head 

placed and cancelled orders in three-year swap spreads on both sides of the market in rapid 

succession in order to affect the pricing screen, and not because he wished to transact in threeyear swap spreads. 

To start, the USD Swap Desk Head placed a bid to buy three-year swap spreads. A SEF 

broker then informed the USD Swap Desk Head that the SEF no longer had an offer to sell threeyear swap spreads, so the price of three-year swap spreads would move up on the screen based 

on the USD Swap Desk Head’s bid. On being informed of this, the USD Swap Desk Head 

immediately withdrew, or cancelled, his bid before it was executed. Cancelling his bid should 

have prevented the price of three-year swap spreads from moving up on the pricing screen. 

 

7

 In 2016, HSBC put in place a policy on “pre-hedging,” or trading ahead of, certain customer transactions, 

including issuer swaps. Among other things, the HSBC policy prohibits trading in front of issuer swaps unless the 

counterparty consents to such trading on the particular trade, the aim of the trading is to “achiev[e] a better 

outcome” for the counterparty, and the trading is carried out so as so minimize market impact. 

8

 HSBC and its affiliates no longer employ the USD Swap Desk Head. 
8 

However, despite the cancellation of the bid, the price for three-year swap spreads moved 

up. As soon as he heard from the SEF broker that the screen had moved up despite his cancelled 

bid to buy three-year swap spreads, the USD Swap Desk Head began offering to sell three-year 

swap spreads. The SEF broker confirmed for the USD Swap Desk Head that his offer “should 

do it,” that is, should move the pricing screen back down. 

A subsequent discussion between the USD Swap Desk Head and the SEF broker 

explicitly confirmed that the USD Swap Desk Head had not wanted to sell three-year swap 

spreads, but had only wanted to affect the prices shown on the pricing screen. In the discussion, 

the SEF broker told the USD Swap Desk Head there was a new bid to buy three-year swap 

spreads at the same price that the USD Swap Desk Head supposedly wanted to sell them. Rather 

than trying to facilitate the trade, however, the SEF broker told the USD Swap Desk Head that he 

would withdraw the USD Swap Desk Head’s offer because he “assume[d]” the USD Swap Desk 

Head “didn’t want to” sell three-year swap spreads. The USD Swap Desk Head confirmed that 

he in fact did not want to sell three-year swap spreads, saying he “wasn’t really being an offer.” 

The SEF broker indicated to the USD Swap Desk Head that he understood that, and further told 

the USD Swap Desk Head that he “knew I could get you in there and not get you lifted,” that is, 

that the SEF broker knew he could make sure that the USD Swap Desk Head’s offer to sell was 

not executed. 

The USD Swap Desk Head engaged in this type of spoofing conduct, in his capacity as 

an employee of HSBC, on a number of occasions over a period of more than six months. 

In the spring of 2016, the SEF inquired of HSBC about certain trading activity of the 

USD Swap Desk Head on four days. This inquiry put HSBC on notice that the USD Swap Desk 

Head may have engaged in trading like the spoofing conduct described above. HSBC responded 

to the SEF’s inquiry, provided the SEF what the SEF requested, and engaged with the SEF 

regarding the nature of the inquiry, but did not conduct a broader investigation to understand the 

full extent of the USD Swap Desk Head’s conduct. HSBC did not attempt to determine how 

long the conduct lasted or on how many occasions the USD Swap Desk Head engaged in 

spoofing, and did not conduct a wider review of the USD Swap Desk Head’s communications 

with brokers at the SEF. Further, the USD Swap Desk Head did not face any disciplinary 

consequences for the conduct. Instead, HSBC has represented that, as a result of the SEF 

inquiry, another supervisor merely advised the USD Swap Desk Head to be more careful and 

precise about the language the USD Swap Desk Head used. HSBC has also represented that, 

following the spring of 2016, it conducted training and enhanced policies making clear that 

spoofing was prohibited, including in the voice brokered swaps market. 

3. Audio Recordkeeping 

To comply with its recordkeeping obligations as a swap dealer under Part 23 of the 

Regulations, 17 C.F.R. pt. 23 (2022), and in particular its obligations to make and keep 

recordings of certain oral communications concerning trading in swaps and related cash and 

forward transactions pursuant to Regulations 1.31(b)(2), 23.202(a)(1) and (b)(1), 17 C.F.R. 

§§ 1.31(b)(2), 23.202(a)(1), (b)(1) (2022), HSBC records the phone calls of individuals who may 
9 

be expected to engage in such communications. This includes recording phone calls made on 

mobile devices. 

Since 2014, HSBC has recorded calls made on mobile devices by using the services of a 

vendor. The vendor’s service worked by allowing calls made on a mobile device to be recorded 

using the same recording hardware that HSBC used for recording calls made in its offices. 

HSBC used the vendor’s service primarily to record phone calls of traders in the Global Banking 

and Markets division. 

The version of the vendor’s system that HSBC used relied on recording architecture 

which compromised the ability of the vendor’s system to reliably record mobile audio. While 

the flaw in the vendor’s recording architecture had existed prior to 2020, increased use of the 

system in the spring of 2020 apparently exacerbated the pre-existing flaw in the recording 

architecture.9

 From at least March 2020 to July 2020, the vendor’s service failed to fully record 

certain HSBC mobile phone calls. Although calls would begin to be recorded, the recordings 

would drop partway through a call. This recording issue affected mobile calls on a random basis. 

The recording failures impacted approximately one percent of mobile phone calls during March 

2020 to May 2020. Because HSBC had used the vendor’s services with the same recording 

architecture prior to the spring of 2020, it is possible that the flaw in the architecture led to the 

same failure to record calls prior to that period. 

 HSBC discovered there was a recording issue in March 2020 when, in the course of audio 

surveillance, compliance found that phone calls were not fully captured on recorded audio. After 

discovering there was an issue, HSBC worked to understand the cause and scope of the issue, 

and once it understood the issue, HSBC sought to remediate the issue by, among other things, 

accelerating a migration to a new recording architecture used by the vendor, which was 

completed by July 2020. 

Although HSBC became aware there was an issue with recordings in March 2020, HSBC 

did not create any alternative written records of the phone calls which were required to be, but 

which were not in fact, recorded. 

4. Cooperation 

HSBC provided substantial cooperation in the Division’s investigation. In particular, 

after HSBC became aware of the investigation, HSBC, on its own initiative, undertook a review 

of certain additional swaps with bond issuers that were not yet a subject of the Division’s 

investigation. Further, throughout the investigation, HSBC drew the Division’s attention to 

materials, such as electronic communications and audio recordings, that might be relevant to the 

Division’s investigation, including materials of which HSBC was aware but which were not 

responsive to any outstanding Division request or subpoena. Moreover, HSBC undertook 

additional fact-finding related to many of the materials it had drawn to the Division’s attention 

and reported the results of these efforts to the Division. HSBC also looked for, and facilitated 

the production to the CFTC of, information and documents located with affiliates of HSBC 

 

9

 In the spring of 2020, the use of the vendor’s service at HSBC and its global affiliates increased from a few 

hundred hours per week of recorded mobile phone calls to approximately 10,000 hours per week. 
10 

overseas. In addition, HSBC has represented to the Division that it has undertaken certain 

remedial measures to prevent the recurrence of the type of conduct addressed in the Order. 

III. LEGAL DISCUSSION 

A. Manipulation Related to Swaps with Bond Issuers 

Section 6(c)(1) of the Act, 7 U.S.C. § 9(1), makes it unlawful “for any person, directly or 

indirectly, to use or employ, or attempt to use or employ, in connection with any swap . . . any 

manipulative or deceptive device or contrivance, in contravention of such rules and regulations 

as the Commission shall promulgate.” In turn Regulation 180.1(a), 17 C.F.R. § 180.1(a) (2022), 

makes it “unlawful for any person, directly or indirectly, in connection with any swap . . . to 

intentionally or recklessly: (1) use or employ, or attempt to use or employ, any manipulative 

device, scheme, or artifice to defraud; (2) make, or attempt to make, any untrue or misleading 

statement of a material fact or to omit to state a material fact necessary in order to make the 

statements made not untrue or misleading; [or] (3) engage, or attempt to engage, in any act, 

practice, or course of business, which operates or would operate as a fraud or deceit upon any 

person.” 

The Act also requires that swap dealers “conform with such business conduct standards 

as prescribed in [in the Act] and as may be prescribed by the Commission by rule or regulation 

that relate to . . . fraud, manipulation, and other abusive practices involving swaps . . . .[and] such 

other matters as the Commission determines to be appropriate.” Section 4s(h)(1)(A) and (D), 

7 U.S.C. § 6s(h)(1)(A), (D). 

Among other business conduct standards prescribed by the Act and the Commission’s 

regulations, swap dealers shall not “engage in any act, practice, or course of business that is 

fraudulent, deceptive, or manipulative.” Regulation 23.410(a)(3), 17 C.F.R. § 23.410(a)(3) 

(2022). Further, it is unlawful for any swap dealer to “[u]se for its own purposes in any way that 

would tend to be materially adverse to the interests of a counterparty, any material confidential 

information provided by or on behalf of a counterparty to the swap dealer.” Regulation 

23.410(c)(1)(ii), 17 C.F.R. § 23.410(c)(1)(ii) (2022). Swap dealers are also required to 

communicate with counterparties “in a fair and balanced manner based on principles of fair 

dealing and good faith.” Regulation 23.433, 17 C.F.R. § 23.433 (2022). 

From March 2012 to 2015, in connection with swap spreads, basis swaps, and its swaps 

with bond issuers, HSBC violated Section 6(c)(1) and Regulation 180.1(a)(1)-(3) when its 

traders engaged in and attempted to engage in manipulative trading in financial products to 

benefit HSBC in those issuer swaps. HSBC’s traders engaged in the trading described above 

with the intent to move prices of financial products that were displayed on pricing screens that 

could be accessed by both bond issuers and other market participants. HSBC traders engaged in 

this trading in order to benefit HSBC on issuer swaps, to the detriment of HSBC’s issuer 

counterparties. Further, in instances where HSBC traders engaged and attempted to engage in 

manipulation, HSBC traders generally timed their trading to affect prices close in time to the 

moment that the price was quoted in the pricing call, and often stopped trading as soon as the 

issuer swap had been priced. This trading deceived both HSBC’s counterparties and other 
11 

market participants, as neither HSBC’s bond issuer counterparties nor other market participants 

were aware that HSBC was engaging in this conduct and that the relevant prices displayed on the 

pricing screens were a result of HSBC’s manipulative trading. By engaging in this trading, 

HSBC traders violated Section 6(c)(1) and Regulation 180.1(a)(1)-(3). 

Further, since HSBC has been registered as a swap dealer, this conduct also violated 

Section 4s(h)(1)(A) and (D) of the Act and Regulations 23.410(a)(3) and (c)(1)(ii) and 23.433. 

HSBC’s manipulative trading in connection with bond issuances constituted an act, practice, or 

course of business that was deceptive and manipulative. Further, in trading in such a way as to 

move market prices in a direction that was better for HSBC and worse for its counterparties 

during pricing calls, HSBC used its counterparties’ material confidential information about the 

timing and pricing of issuer swaps in a way that was materially adverse to the interests of its 

counterparties. Finally, because HSBC communicated with counterparties about issuer swaps 

without disclosing to counterparties that its traders would trade, or had traded, to move prices in 

a direction that favored HSBC and disadvantaged the counterparties, HSBC did not 

communicate with its counterparties in a fair and balanced manner based on principles of fair 

dealing and good faith. 

B. Spoofing 

Section 4c(a)(5)(C) of the Act, 7 U.S.C. § 6c(a)(5)(C), makes it unlawful for “[a]ny 

person to engage in any trading, practice, or conduct on or subject to the rules of a registered 

entity that . . . is, is of the character of, or is commonly known to the trade as, ‘spoofing’ 

(bidding or offering with the intent to cancel the bid or offer before execution).” See, e.g., 

United States v. Coscia, 866 F.3d 782, 792-93 (7th Cir. 2017) (holding that because the Act 

clearly defines spoofing, it provides adequate notice of prohibited conduct), cert. denied, 138 S. 

Ct. 1989 (2018). 

As described above, from September 2015 to April 2016, Respondent, by and through the 

acts of the USD Swap Desk Head, placed bids and offers for swap products on a SEF, a 

registered entity, with the intent to cancel those bids and offers before they were executed. By 

engaging in this conduct, Respondent violated Section 4c(a)(5)(C) of the Act. See CFTC v. 

Oystacher, 203 F. Supp. 3d 934, 942 (N.D. Ill. 2016) (denying motion for judgment on the 

pleadings, holding that allegations of placing “both bids and offers with the intent to cancel those 

bids or offers before execution” constitutes “trading behavior [that] falls within the Spoofing 

Statute’s defined prohibition”); see also Section 1a(40)(D), 7 U.S.C. § 1a(40)(D) (defining 

“registered entity” to include a SEF). 

C. Supervision 

Section 4s(h)(1)(B) of the Act requires “diligent supervision of the business of the 

registered swap dealer.” 7 U.S.C. § 6s(h)(1)(B). Regulation 23.602 requires that each swap 

dealer “shall establish and maintain a system to supervise, and shall diligently supervise, all 

activities relating to its business performed by its partners, members, officers, employees, and 

agents (or persons occupying a similar status or performing a similar function).” 17 C.F.R. 

§ 23.602 (2022). 
12 

Under Regulation 23.602, a violation is demonstrated by showing either that: (1) the 

registrant’s supervisory system was generally inadequate; or (2) the registrant failed to perform 

its supervisory duties diligently. See In re Commerzbank AG, CFTC No. 19-03, 2018 WL 

5921385, at *10-11 (Nov. 8, 2018) (consent order) (noting textual similarities between 

Regulation 23.602 and Regulation 166.3, applying case law concerning Regulation 166.3, and 

citing In re Murlas Commodities, Inc., CFTC No. 85-29, 1995 WL 523563, at *9 (Sept. 1, 1995), 

and In re Paragon Futures Assoc., CFTC No. 88-18, 1992 WL 74261, at *14 (Apr. 1, 1992)); In 

re INTL FCStone Markets, LLC, CFTC No. 15-27, 2015 WL 4980321, at *3 (Aug. 19, 2015) 

(same). Evidence of violations that “should be detected by a diligent system of supervision, 

either because of the nature of the violations or because the violations have occurred repeatedly,” 

is probative of a failure to supervise. Paragon, 1992 WL 74261, at *14. 

From the time it was provisionally registered as a swap dealer until 2015, HSBC failed to 

diligently supervise, or establish and maintain a system to supervise, the conduct of its traders in 

connection with swaps with bond issuers. Neither the trading itself nor the discussions of 

manipulation on HSBC’s electronic communications systems and recorded phone lines were 

flagged by any surveillance system, nor were the trading or communications in any transaction 

the subject of any contemporaneous inquiry or investigation conducted by HSBC. This is the 

case even though senior HSBC managers were aware of the conduct of traders in certain 

transactions. Further, despite this awareness, no senior HSBC manager reported or sought to end 

the conduct. Instead, some condoned—or even directed and encouraged—the conduct. Indeed, 

the HSBC Head of North American Rates was a senior manager who was an integral part of 

HSBC’s supervisory structure, and not only was he aware of the misconduct, but he actually 

directed and participated in it. No individuals associated with HSBC faced disciplinary action by 

HSBC for this conduct. 

Further, from September 2015 to April 2016, HSBC failed to diligently supervise, or 

establish and maintain a system to supervise, the conduct of the USD Swap Desk Head in the 

voice brokered swap market. During this period, the USD Swap Desk Head engaged in spoofing 

on multiple occasions, and discussed this spoofing with individuals at the SEF, but neither the 

market activity nor the communications were flagged by any surveillance system. Further, when 

HSBC was alerted by the SEF’s inquiry to the fact that the USD Swap Desk Head may have 

engaged in spoofing, HSBC did not conduct a broader review to determine the full extent of the 

USD Swap Desk Head’s conduct, such as how long the conduct lasted or on how many 

occasions the USD Swap Desk Head engaged in spoofing. Additionally, the USD Swap Desk 

Head did not face any disciplinary consequences for the conduct. 

D. Audio Recordkeeping 

Regulation 23.202(a)(1) and (b)(1), 17 C.F.R. § 23.202(a)(1), (b)(1) (2022), requires, in 

relevant part, every swap dealer to keep daily trading records of all swaps and related cash and 

forward transactions it executes, including, specifically a record of all oral communications 

provided or received concerning quotes, solicitations, bids, offers, instructions, trading, and 

prices that led to the execution of a swap transaction or the conclusion of a related cash or 

forward transaction. Regulation 1.31(b)(2), 17 C.F.R. § 1.31(b)(2) (2022), specifies that such 

recordings must be kept for a period of one year. From at least March 2020 to July 2020, HSBC, 
13 

due to a recording failure, did not make and keep required recordings of mobile phone calls that 

contained the oral communications that led to the execution of swaps and related cash and 

forward transactions. These failures violated Regulations 23.202(a)(1) and (b)(1) and 

23.203(b)(2).10

E. HSBC is Liable for the Acts of its Agents 

Section 2(a)(1)(B) of the Act, 7 U.S.C. § 2(a)(1)(B), and Regulation 1.2, 17 C.F.R. § 1.2 

(2022), provide that “[t]he act, omission, or failure of any official, agent, or other person acting 

for any individual, association, partnership, corporation, or trust within the scope of his 

employment or office shall be deemed the act, omission, or failure of such individual, 

association, partnership, corporation, or trust.” Pursuant to Section 2(a)(1)(B) of the Act and 

Regulation 1.2, strict liability is imposed on principals for the actions of their agents. See, e.g., 

Rosenthal & Co. v. CFTC, 802 F.2d 963 966 (7th Cir. 1986); CFTC v. Byrnes, 58 F. Supp. 3d 

319, 324 (S.D.N.Y. 2014). 

Because the traders who engaged in the manipulation and spoofing conduct described 

above engaged in that conduct within the scope of their employment with HSBC, HSBC is liable 

for their violations of Sections 4c(a)(5)(C) and 6(c)(1) of the Act, 7 U.S.C. §§ 6c(a)(5)(C), 9(1), 

and Regulation 180.1(a)(1)-(3). 

IV. FINDINGS OF VIOLATIONS 

Based on the foregoing, the Commission finds that, during the Relevant Period, HSBC 

Bank USA, N.A. violated Sections 4c(a)(5)(C), 4s(h)(1)(A), (B) and (D), and 6(c)(1) of the Act, 

7 U.S.C. §§ 6c(a)(5)(C), 6s(h)(1)(A), (B), (D), 9(1), and Regulations 1.31(b)(2), 23.202(a)(1) 

and (b)(1), 23.410(a)(3) and (c)(1)(ii), 23.433, 23.602, and 180.1(a)(1)-(3), 17 C.F.R. 

§§ 1.31(b)(2), 23.202(a)(1), (b)(1), 23.410(a)(3), (c)(1)(ii), 23.433, 23.602, 180.1(a)(1)-(3) 

(2022). 

V. OFFER OF SETTLEMENT 

Respondent has submitted the Offer in which it, without admitting or denying the 

findings and conclusions herein: 

 

10 On March 17, 2020, the Division of Swap Dealer and Intermediary Oversight (“DSIO,” now renamed the 

Market Participant Division) issued a “no-action” letter to swap dealers. CFTC No-Action Letter CFTCLTR No. 

20-06, 2020 WL 1934684, No-Action Positions for Swap Dealers to Facilitate Physical Separation of Personnel in 

Response to the COVID-19 Pandemic (Mar. 17, 2020). In relevant part, the no-action letter provided that, until June 

30, 2020, DSIO would not recommend that the Commission bring an enforcement action against a swap dealer for 

failing to comply with audio recording requirements in certain circumstances, provided that the swap dealer met 

certain conditions. One such condition was that the swap dealer create and maintain a “written record of the oral 

communication, including date, time, identifying information of the persons participating, and subject matter of the 

communication.” Id. at *1. Because HSBC did not create alternative written records of the missing phone calls 

even though it became aware of the recording failure in March 2020, HSBC does not qualify for this no-action relief 

for missing recordings from March 17, 2020 to July 2020. Further, to the extent that the recording failure resulted in 

HSBC’s failure to record audio that was required to be recorded between 2014 and March 17, 2020, the no-action 

letter would not be applicable. 
14 

A. Acknowledges service of this Order; 

B. Admits the jurisdiction of the Commission with respect to all matters set forth in this 

Order and for any action or proceeding brought or authorized by the Commission based 

on violation of or enforcement of this Order; 

C. Waives: 

1. The filing and service of a complaint and notice of hearing; 

2. A hearing; 

3. All post-hearing procedures; 

4. Judicial review by any court; 

5. Any and all objections to the participation by any member of the Commission’s 

staff in the Commission’s consideration of the Offer; 

6. Any and all claims that it may possess under the Equal Access to Justice Act, 

5 U.S.C. § 504, and 28 U.S.C. § 2412, and/or the rules promulgated by the 

Commission in conformity therewith, Part 148 of the Regulations, 17 C.F.R. 

pt. 148 (2022), relating to, or arising from, this proceeding; 

7. Any and all claims that it may possess under the Small Business Regulatory 

Enforcement Fairness Act of 1996, Pub. L. No. 104-121, tit. II, §§ 201-53, 

110 Stat. 847, 857-74 (codified as amended at 28 U.S.C. § 2412 and in scattered 

sections of 5 U.S.C. and 15 U.S.C.), relating to, or arising from, this proceeding; 

and 

8. Any claims of Double Jeopardy based on the institution of this proceeding or the 

entry in this proceeding of any order imposing a civil monetary penalty or any 

other relief, including this Order; 

D. Stipulates that the record basis on which this Order is entered shall consist solely of the 

findings contained in this Order to which Respondent has consented in the Offer; 

E. Consents, solely on the basis of the Offer, to the Commission’s entry of this Order that: 

1. Makes findings by the Commission that Respondent violated Sections 4c(a)(5)(C), 

4s(h)(1)(A), (B) and (D), and 6(c)(1) of the Act, 7 U.S.C. §§ 6c(a)(5)(C), 

6s(h)(1)(A), (B), (D), 9(1), and Regulations 1.31(b)(2), 23.202(a)(1) and (b)(1), 

23.410(a)(3) and (c)(1)(ii), 23.433, 23.602, and 180.1(a)(1)-(3), 17 C.F.R. 

§§ 1.31(b)(2), 23.202(a)(1), (b)(1), 23.410(a)(3), (c)(1)(ii), 23.433, 23.602, 

180.1(a)(1)-(3) (2022); 

2. Orders Respondent and its successors and assigns to cease and desist from 

violating Regulations Sections 4c(a)(5)(C), 4s(h)(1)(A), (B) and (D), and 6(c)(1), 
15 

and Regulations 1.31(b)(2), 23.202(a)(1) and (b)(1), 23.410(a)(3) and (c)(1)(ii), 

23.433, 23.602, and 180.1(a)(1)-(3); 

3. Orders Respondent to pay a civil monetary penalty in the amount of forty-five 

million dollars ($45,000,000), plus post-judgment interest; 

4. Orders Respondent and its successors and assigns to comply with the conditions 

and undertakings consented to in the Offer and as set forth in Part VI of this Order. 

Upon consideration, the Commission has determined to accept the Offer. 

VI. ORDER 

Accordingly, IT IS HEREBY ORDERED THAT: 

A. Respondent and its successors and assigns shall cease and desist from violating 

Regulations Sections 4c(a)(5)(C), 4s(h)(1)(A), (B) and (D), and 6(c)(1), 7 U.S.C. 

§§ 6c(a)(5)(C), 6s(h)(1)(A), (B), (D), 9(1), and Regulations 1.31(b)(2), 23.202(a)(1) and 

(b)(1), 23.410(a)(3) and (c)(1)(ii), 23.433, 23.602, and 180.1(a)(1)-(3), 17 C.F.R. 

§§ 1.31(b)(2), 23.202(a)(1), (b)(1), 23.410(a)(3), (c)(1)(ii), 23.433, 23.602, 180.1(a)(1)-

(3) (2022). 

B. Respondent shall pay a civil monetary penalty in the amount of forty-five million U.S. 

dollars ($45,000,000) (“CMP Obligation”) within fourteen days of the entry of this 

Order. If the CMP Obligation is not paid in full within fourteen days of the entry of this 

Order, then post-judgment interest shall accrue on the CMP Obligation beginning on the 

date of entry of this Order and shall be determined by using the Treasury Bill rate 

prevailing on the date of entry of this Order pursuant to 28 U.S.C. § 1961. 

Respondent shall pay the CMP Obligation and any post-judgment interest by electronic 

funds transfer, U.S. postal money order, certified check, bank cashier’s check, or bank 

money order. If payment is to be made other than by electronic funds transfer, then the 

payment shall be made payable to the Commodity Futures Trading Commission and sent 

to the address below:

MMAC/ESC/AMK326 

Commodity Futures Trading Commission 

6500 S. MacArthur Blvd. 

HQ Room 266 

Oklahoma City, OK 731699-AMC-AR-CFTC@faa.gov 

 If payment is to be made by electronic funds transfer, Respondent shall contact Tonia 

King or her successor at the above email address to receive payment instructions and 

shall fully comply with those instructions. Respondent shall accompany payment of the 

CMP Obligation with a cover letter that identifies the paying Respondent and the name 

and docket number of this proceeding. The paying Respondent shall simultaneously 

transmit copies of the cover letter and the form of payment to the Chief Financial Officer, 
16 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, D.C. 20581. 

C. Respondent and its successors and assigns shall comply with the following conditions 

and undertakings set forth in the Offer: 

1. Public Statements: Respondent agrees that neither it nor any of its successors and 

assigns, agents, or employees under its authority or control shall take any action 

or make any public statement denying, directly or indirectly, any findings or 

conclusions in this Order or creating, or tending to create, the impression that this 

Order is without a factual basis; provided, however, that nothing in this provision 

shall affect Respondent’s: (i) testimonial obligations; or (ii) right to take legal 

positions in other proceedings to which the Commission is not a party. 

Respondent and its successors and assigns shall comply with this agreement, and 

shall undertake all steps necessary to ensure that all of its agents and/or 

employees under its authority or control understand and comply with this 

agreement. 

2. Remedial Undertakings: 

a. Respondent represents that it has already undertaken and continues 

to undertake extensive remedial measures to implement and 

strengthen its internal controls and procedures relating to its fixed 

income business, including the following: 

i. HSBC has conducted a global, multi-year 

remediation program with respect to its fixed 

income business designed to enhance its governance 

and control framework. 

ii. HSBC issued enhanced, global policies and 

guidance on topics such as material order handling, 

pre-hedging, and spoofing. 

iii. HSBC improved its internal governance framework 

in order to formalize HSBC’s conduct escalation 

process and ensure that HSBC management 

identifies and manages potential employee 

misconduct. 

iv. HSBC strengthened its mandatory training 

requirements for all fixed income employees, as 

well as enhanced its training modules to include 

topics such as managing potential or actual conflicts 

of interest, pre-hedging, and spoofing. 
17 

v. HSBC strengthened its existing surveillance tools 

for electronic and voice communications, as well as 

its trade surveillance tools designed to identify 

concerning trading such as potential spoofing. 

vi. In 2017, HSBC revised its client Fixed Income 

Terms of Dealing to specifically address potential 

conflicts of interest. 

b. Further, HSBC undertakes that it will: 

i. Create a method of tracking the responses received 

from clients to requests for consents to pre-hedging 

under the pre-hedging policy; and 

ii. Require documentation in writing of why such 

pre-hedging is believed to benefit the client, and 

create a method of tracking such documentation. 

3. Cooperation with the Commission: Respondent shall cooperate fully and 

expeditiously with the Commission, including the Division, in this action and in 

any current or future Commission investigation or action related thereto. 

Respondent shall also cooperate with the Commission in any investigation, civil 

litigation, or administrative proceeding related to, or arising from, the subject 

matter of this proceeding. Respondent’s cooperation shall continue for a period 

of five years from the date of entry of this Order. As part of such cooperation, 

Respondent agrees to: 

a. Preserve and produce to the Commission in a responsive and prompt 

manner, as requested by Division staff, all non-privileged 

documents, information, and other materials wherever located, 

including, but not limited to, audio files, electronic communications, 

and trading records and data, in the possession, custody, or control of 

Respondent; 

b. Comply fully, promptly, completely, and truthfully, subject to any 

legally recognized privilege, with any inquiries or requests for 

information or documents by the Commission; 

c. Identify and authenticate relevant documents and other evidentiary 

materials, execute affidavits or declarations, and provide a corporate 

representative to testify completely and truthfully at depositions, 

trial, and other judicial proceedings, when requested to do so by 

Division staff; 
d. Use its best efforts to produce any current ( as of the time of the 

request) officer, director, employee, or agent of Respondent, 

regardless of the individual's location and at such a location that 

minimizes Commission travel expenditures, to provide assistance at 

any trial, proceeding, or Commission investigation related to the 

subject manner of this proceeding, including, but not limited to, 

requests for testimony, depositions, or interviews, and to encourage 

them to testify completely and truthfully in any such trial, 

proceeding, or investigation; and 

e. Subject to applicable laws and regulations, use their best efforts to 

assist in locating and contacting any prior ( as of the time of the 

request) officer, director, employee, or agent of Respondent. 

4. Partial Satisfaction: Respondent understands and agrees that any acceptance by 

the Commission of any partial payment of Respondent's CMP Obligation shall 

not be deemed a waiver of its obligation to make further payments pursuant to this 

Order, or a waiver of the Commission's right to seek to compel payment of any 

remaining balance. 

5. Change of Address/Phone: Until such time as Respondent satisfies in full its 

CMP Obligation as set forth in this Order, Respondent shall provide written 

notice to the Commission by certified mail of any change to its telephone number 

and mailing address within ten (10) calendar days of the change. 

The provisions of this Order shall be effective as of this date. 

By the Commission. 

~k.~-

Christopher J. K1rkpatrick 

Secretary of the Commission 

Commodity Futures Trading Commission 

Dated: May 12, 2023 

18