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Top Banks Under Scrutiny: Possible UK Bond Market Manipulation Unveiled

A UK investigation has spotlighted anti-competitive conduct in the UK government bond market, implicating several of the world's leading financial institutions.

Deutsche Bank towers
Deutsche Bank towers

Deutsche Bank and Citigroup Acknowledge Anti-Competitive Conduct

Deutsche Bank and Citigroup have confessed to exchanging confidential data on UK government bonds between 2009 and 2013. These admissions came as the UK's anti-trust watchdog, the Competition and Markets Authority (CMA), provisionally identified five banks that may have violated competition laws.

HSBC, Morgan Stanley, and Royal Bank of Canada Deny Misconduct

Meanwhile, HSBC, Morgan Stanley, and the Royal Bank of Canada have not conceded any illicit behavior regarding the alleged information sharing. The purported exchanges occurred in one-on-one conversations between a small number of traders in Bloomberg chatrooms following the global financial crisis.

Investigation Findings Pending: Potential Financial Penalties Loom

On Wednesday, the CMA announced its intention to evaluate additional information from the banks before concluding its course of action, including the possible imposition of financial sanctions. The conversations under scrutiny are believed to concern the buying and selling of UK government bonds, including specific pricing details and trading strategies.

Impact on Taxpayers, Pension Savers, and Financial Institutions

Michael Grenfell, the Executive Director of Enforcement at the CMA, commented on the gravity of the allegations, saying they merit a thorough investigation. He emphasized the potential harm to taxpayers, pension savers, and financial institutions, who may have been denied full competition benefits, including lower borrowing costs.

Enforcement Action Under Consideration

The CMA clarified that it has yet to decide on enforcement action against any of the banks due to insufficient evidence of competition law infringement. Until such a decision is made, it underscored that no assumption should be made regarding any legal breaches by the banks.

Citi sign
Citi sign

Possible Fine Discounts for Deutsche Bank and Citigroup

Deutsche Bank has alerted the CMA about its involvement through its leniency policy, potentially avoiding a fine if the preliminary findings are confirmed. Citigroup, which has also settled with the CMA, may likewise receive a fine reduction.

Banks Respond to the Allegations

A Deutsche Bank spokesperson disclosed that the bank had received "provisional immunity" after voluntarily reporting the activities before 2014. Citigroup confirmed its full cooperation with the CMA and expressed relief at moving past the issue. On the other hand, Morgan Stanley, HSBC, and RBC have voiced disagreements with the CMA's preliminary findings and intent to contest them.

The Probe: Origin and Ongoing Investigation

The CMA began investigating alleged information exchanges among some banks during regular buy-back auctions of UK government debt, or gilts, in November 2018. Following the financial crisis, the Bank of England initiated these auctions to bolster the UK economy and markets.