April 5 - Fitch Ratings says Royal Bank of Canada's (RBC) 'AA/F1+' short- and long-term issuer default ratings remain unchanged following the announcement of a complaint filed by the U.S. Commodity Futures Trading Commission (CFTC) regarding potential wash trades undertaken by the bank. RBC has strongly denied the CFTC's allegations. Given the reported size of the trades under review by the CFTC, we expect any potential fine or other charge, if levied, would likely be manageable relative to RBC's financial resources and current capital position. An outsized fine, permanent reputational damage, and/or material business restrictions could affect the ratings, although these outcomes are not expected at this time. On Monday, the CFTC filed a complaint in federal district court in New York charging RBC with conducting a multi-hundred million dollar wash sale scheme in connection with exchange-traded stock futures contracts on OneChicago, LLC, an electronic futures exchange under the regulatory supervision of CME Group, Inc. The complaint alleges that during a period from at least June 2007 to May 2010, RBC traded hundreds of millions of dollars' worth of narrow-based stock index futures and single futures contracts with two of its subsidiaries in transactions that were not completed at arm's length between the counterparties as required by law. The CFTC alleges that RBC conducted the trades in such a way that the profits and losses for each RBC counterparty washed to zero while allowing RBC to record Canadian tax benefits from holding certain public companies' securities in domestic and offshore trading accounts. The CFTC is seeking civil monetary penalties and permanent restraint of relevant sections of the Commodity Exchange Act and the CFTC's Regulations. RBC has indicated the company had sought guidance on its trading activity from the CFTC in 2005 and received no objection from the exchange. RBC has also stated that it does not expect this to be a financially material event. Nevertheless, potential reputation damage could have more of an impact. At this stage, the CFTC's charges are centered on RBC, but this event highlights the potential for increased rigor and conservatism from the CFTC and other regulators. Additional information is available on www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.