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Bank of America trading practices examined

4:46 PM, Jan 25, 2014   |    comments
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by Kevin McCoy
USA TODAY

Federal prosecutors and regulators have investigated whether Bank of America improperly executed its own futures trades ahead of large orders executed for its clients, a financial regulatory filing shows.

The June 14 filing on the securities industry regulator FINRA website, first reported by Reuterson Saturday, does not accuse the North Carolina-based bank of any wrongdoing.

But the filing states that the U.S. Attorney's office in North Carolina "is investigating whether it was proper for the swaps desk to execute futures trades prior to the desk's execution of block future trades on behalf of counterparties. ..."

The filing also states that the Commodity Futures Trading Commission "is conducting a parallel investigation into the trading issue."

The investigations involved formal probes by prosecutors or regulatory agencies that are considered more serious than preliminary inquiries, according to the filing, provided to FINRA by the bank.

Bank of America decline to comment on the filing, which was included in a FINRA background report on Eric Alan Beckwith, who previously worked at the bank's Merrill Lynch broker-dealer division in New York.

Beckwith could not be reached for comment.

Reuters reported that the regulatory filing appears to provide context for a Jan. 8 FBI warning that said Wall Street traders may be front-running government-owned mortgage giants Fannie Mae and Freddie Mac in the interest-rate swaps market.

Front-running refers to a technique in which a trader with knowledge of a large pending trade order by a client or other market participant executes her or his own trade first. Such tactics often generate profits generated by market movements after the larger trade is executed.

The investigation cited in the FINRA filing appears to be part of a broader international crackdown on suspected trading abuses. Prosecutors and regulators in the United States and abroad are probing suspected manipulation of foreign exchange rates, suspected metal price trading abuses and rigging of other financial benchmarks.

The ongoing probes have produced roughly $3.1 billion in penalties paid by banks that acknowledged traders had manipulated the the London interbank offered rate. Libor is used to set the rates on trillions of dollars of mortgages, car loans, student loans and some complex financial derivatives.

USA Today

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