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UK watchdog says five banks may have broken competition law on bonds

24th May 2023 11:05

(Alliance News) - The UK competition watchdog on Wednesday said it has provisionally found five banks guilty of breaking competition law on UK bonds over a decade ago, and it may issue fines in due course.

The UK Competition & Markets Authority said the banks had "unlawfully" exchanged sensitive information about UK government bonds in one-to-one online chats. It named Citigroup Inc, Deutsche Bank AG, HSBC Holdings PLC, Morgan Stanley and Royal Bank of Canada.

The activity is alleged to have occurred at "varying times" between 2009 and 2013.

"The information exchanges took place in one-to-one Bloomberg chatrooms between a small number of traders who worked at the banks and related to the buying and selling of UK government bonds - specifically, gilts and gilt asset swaps," the CMA explained.

The traders discussed details of pricing as well as "other aspects" of their trading strategies.

The exchanges of information occurred within transactions including the sale of gilts by the UK Debt Management Office via auctions on behalf of the UK Treasury, the CMA said. They also occurred with regards to the subsequent buying and selling of gilts and gilt asset swaps.

The exchanges of information also occurred in the buy-back auction of gilts by the Bank of England, though Deutsche Bank and HSBC's exchanges do not pertain to this, the CMA noted.

"By unlawfully exchanging competitively sensitive information rather than fully competing, the banks involved in these arrangements could have denied the full benefits of competition to those they traded with - including, among others, pension funds, the UK Debt Management Office (which sells gilts by auction), and ultimately HM Treasury and UK taxpayers," the CMA explained.

The watchdog said it was informed by Deutsche Bank of its participation in the alleged behaviour under its leniency policy. Citi applied for leniency during the investigation.

"Both banks have admitted their involvement in anti-competitive activity and, providing they continue to cooperate and comply with the conditions of leniency, Deutsche Bank will not be fined and any fine that Citi receives will be discounted," the CMA explained.

Citi also reached a settlement with the regulator, and if compliant, will receive a further discount on any potential fine.

The CMA said its probe is ongoing, and if it decides two or more of the banks engaged in anticompetitive behaviour, it will publish an infringement decision and may issue fines.

"A properly functioning, competitive bond market benefits tens of millions of taxpayers and pension savers as well as being at the heart of the UK's reputation as a global financial hub. These alleged activities are therefore very serious and warrant the detailed investigation we have undertaken," said Michael Grenfell, executive director of Enforcement at CMA.

HSBC, Morgan Stanley and RBC have not yet admitted any wrongdoing.

"At this stage, no assumption should be made that any of the banks have broken the law," the CMA said.

HSBC shares were down 2.6% in London on Wednesday morning. Deutsche Bank was down 2.3% in Frankfurt. Morgan Stanley and Citi were down 0.6% and 0.5%, respectively, in pre-market trading in New York. RBC had closed down 1.0% in Toronto on Tuesday.

By Elizabeth Winter, Alliance News senior markets reporter

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