March 8, 2012

BlackRock Institutional Trust Co. NA Agrees to Pay $250,000 Penalty to Settle Charges of Prearranged Trading and Fictitious Sales on the CBOT

Trade was in ten year U.S. Treasury Note Futures spreads

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and simultaneously settling charges against BlackRock Institutional Trust Company NA (BlackRock) of San Francisco, Calif., for engaging in prearranged trades that were noncompetitively executed and fictitious sales in ten year U.S. Treasury Note Futures spreads (ten year spreads) on the Chicago Board of Trade (CBOT). BlackRock is an investment management firm and is a wholly owned subsidiary of BlackRock, Inc.

The CFTC order requires BlackRock to pay a $250,000 civil monetary penalty. The order also requires BlackRock to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations and to comply with certain undertakings.

The CFTC order finds that a BlackRock employee developed a trading strategy with the underlying purpose that BlackRock be on both sides of a ten year spread transaction.

According to the order, on two occasions in 2010, a BlackRock employee utilized a trading execution strategy with the intent to cross BlackRock orders in ten year spreads. The employee entered buy and sell orders with two different futures commission merchants (FCMs) near the same time, with the orders to be executed on the CBOT floor, the order finds. The buy and sell orders were for the same large, specific amount, and one of the orders was designated “all or none,” the order finds. The intent behind the structure of the transactions was for the orders to cross, and the orders did in fact cross on the two occasions, the order finds.

In addition, according to the order, for one of the transactions, the BlackRock employee engaged in pre-execution communications with an account executive at the selling FCM, with the purpose that the FCM sell to the paired bid from BlackRock. The order finds that the BlackRock employee engaged in two prearranged trades, which were both noncompetitively executed and fictitious sales.

The order finds BlackRock liable for its employee’s violations of the CEA and CFTC regulations because the employee was acting within the scope of his employment with BlackRock.

In settling this matter, the CFTC has taken into account BlackRock’s effective cooperation during the CFTC’s investigation.

The CFTC thanks the CME Group for its assistance.

CFTC Division of Enforcement staff responsible for this case are David Chu, Diane M. Romaniuk, Ava M. Gould, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.

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Dennis Holden
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Last Updated: March 8, 2012