Five banks said to have breached competition law in UK bond markets

The Competition and Markets Authority (CMA) alleged Citi, Deutsche Bank, HSBC, Morgan Stanley and the Royal Bank of Canada engaged in one-to-one conversations in chat rooms, resulting in the exchange of sensitive details related to the buying and selling of UK government bonds.

It said the alleged behaviour, which happened between 2009 and 2013, involved the sharing of information on pricing and other trading strategies, specifically pertaining to gilts and gilt asset swaps.

The communication took place in private Bloomberg chat rooms among a small number of traders employed by the banks.

It said the transactions in question were linked to several activities, including the sale of gilts by the UK Debt Management Office through auctions on behalf of HM Treasury, the subsequent trading of gilts and gilt asset swaps, and buy-back auctions of gilts conducted by the Bank of England, such as those related to quantitative easing.

The CMA did note that contacts between Deutsche Bank and HSBC did not involve any conduct related to buy-back auctions.

By unlawfully sharing competitively sensitive information rather than engaging in fair competition, the CMA said the banks potentially hindered the full benefits of competition for other market participants, including pension funds, the UK Debt Management Office, HM Treasury, and ultimately UK taxpayers.

Deutsche Bank, through its participation in the alleged misconduct, proactively alerted the CMA under its leniency policy, and Citi similarly applied for leniency during the investigation.

Both banks admitted their involvement in anti-competitive activity and, subject to continued cooperation and compliance with leniency conditions, the CMA said Deutsche Bank would not face a fine.

Citi, on the other hand, may receive a discounted fine.

In addition, Citi entered into a settlement agreement with the CMA, meaning it would receive a further discount to any fine imposed if it abided by the terms of the settlement.

The CMA said its investigation was still ongoing, adding that if the final conclusions indicated that two or more banks engaged in anti-competitive behaviour, it would publish an infringement decision, and could impose fines.

“Our provisional decision has found that, in the aftermath of the global financial crisis, five global banks broke competition law by taking part in a series of one-to-one online exchanges of competitively sensitive information on pricing and other aspects of their trading strategies on UK bonds,” said the CMA’s executive director of enforcement Michael Grenfell.

“This could have denied taxpayers, pension savers and financial institutions the benefits of full competition for these products, including the minimisation of borrowing costs.

“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.”

Grenfell said the alleged activities were thus “very serious”, and warranted a detailed investigation.

“While both Deutsche Bank and Citi have admitted their involvement in anti-competitive conduct, we will now consider further representations from the parties before reaching a final decision.”

Reporting by Josh White for Sharecast.com.