Mizuho Capital Markets Fined Over $6.8M by CFTC for Violations of Swap Dealer Business Conduct Standards

Mizuho Capital Markets LLC (Mizuho), a provisionally registered swap dealer based in New York, has settled charges with the Commodity Futures Trading Commission for failing to provide sufficient disclosures to customers in certain foreign exchange forward transactions, a violation of the Swap Dealer Business Conduct Standards.

As part of the settlement, Mizuho has been ordered to cease and desist from future violations of these standards, pay $1,847,182.90 in restitution, and pay a $5 million civil monetary penalty.

between June 2018 and December 2020, when executing certain foreign exchange forward transactions known as "deal-contingent FX forwards," Mizuho failed to adequately disclose to certain customers that it was trading in the minutes or seconds before Mizuho provided the spot exchange rate to, and executed the forward transaction with, the customer.

Mizuho's trading in certain currency pair transactions possibly played a role in moving the spot exchange rate unfavorably against customers. As a result of these actions, the customer may have obtained the currency it sought to acquire via the foreign exchange forward at a rate less favorable than may otherwise have been available. Mizuho may also have been able to hedge its exposure, vis-à-vis its customers, at a rate more favorable than may otherwise have been available. By failing to adequately disclose to its customers that it traded in this manner at times, Mizuho violated the Swap Dealer Business Conduct Standards.

Ian McGinley, Director of Enforcement at CFTC, said: "The CFTC's settlement with Mizuho is the latest in a series of enforcement actions against swap dealers for violations of the Business Conduct Standards. Congress mandated these standards to ensure that honesty and transparency prevail in swaps markets, including over-the-counter swaps markets. Our significant penalties here reflect the consequences swap dealers face from failing to meet these standards."

Earlier in September 2021, Mizuho had settled another charges with the US regulator with a $1,500,000 civil monetary penalty for failing to comply with certain swap dealer requirements concerning reconciling swap portfolios with its counterparties; providing disclosures to counterparties concerning the daily mid-market mark of swaps; and reporting swap transactions to a swap data repository (SDR); and related supervision failures.