The UK’s competition regulator said traders at five banks might have breached rules about cartels by sharing sensitive information on various aspects of the Gilt market in electronic chats.
The Competition and Markets Authority named Citigroup, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of Canada in a provisional finding. The traders' behaviour is alleged to have taken place between 2009 and 2013.
The CMA said traders swapped pricing details and information on their strategies in Gilt auctions and subsequent buying and selling of Gilts. Citigroup, Morgan Stanley and RBC are also accused of sharing information about buybacks by the Bank of England as part of its asset purchase plans.
“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,” the CMA said in a statement.
It claimed this would have affected pension funds, the UK Debt Management Office and UK taxpayers.
“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,” said Michael Grenfell, executive director of enforcement at the CMA.
“These alleged activities are therefore very serious and warrant the detailed investigation we have undertaken. We will now consider further representations from the parties before reaching a final decision.”
Banks' reactions
Deutsche first alerted the CMA about its participation and received more lenient treatment. It will not be fined. Citigroup subsequently applied for leniency after helping the enquiry and its fine will be discounted. Both banks admitted to conducting anti-competitive behaviour. No final fines have yet been levied.
Citigroup has already entered a settlement agreement with the CMA, which will give it a further discount on any eventual fine. “We have cooperated fully with the CMA on this matter and are pleased to put it behind us,” the bank said.
After the enquiries are concluded, banks that have been found to have acted anti-competitively will face an infringement decision and could face fines of up to 10% of the institution’s worldwide turnover. However, in practice that is expected to be reduced after factoring various mitigations.
The investigation was opened in November 2018. The CMA said HSBC, Morgan Stanley and RBC had not admitted any wrongdoing and no banks could yet be assumed to have broken the law. The banks will now have a period to respond to the statement of objections each has received.
Morgan Stanley said it had “cooperated fully with the CMA during this investigation” and would continue to “constructively engage in the process” but said it disagreed with the provisional allegations. “We … intend to contest them,” it said.
RBC said it had also cooperated fully with the CMA and disagreed with the findings. “We take any allegation of employee misconduct very seriously,” it said.
HSBC said it “refutes the CMA’s allegations. We will continue to make our case to the CMA as appropriate whilst we await a final decision”.
European precedent
Two years ago the European Commission fined UBS, Nomura and UniCredit €371m for participating in a cartel among European government bond traders across seven banks between 2007 and 2011.
The other four banks involved, Bank of America, Royal Bank of Scotland, Natixis and WestLB, escaped fines. RBS revealed the cartel to the commission and the other banks played minor roles.
That decision led to a temporary ban on all seven banks, and others who had previously breached antitrust rules, from pitching for mandates to handle deals for the European Union's €800bn NextGenerationEU funding programme. However, most of the banks were reinstated in the process within weeks after pledging remedial action to correct past misbehaviour.
A spokesperson for the UK’s DMO declined to comment on whether the banks in the Gilt market case might face similar sanctions.
Observers point out that the DMO may be nervous of banning any banks from participation in its deals, given that it currently needs all the help it can get to sell its bonds.
In April 2021, the EC fined BofA, Credit Agricole and Credit Suisse a combined €28.5m for operating a cartel in the secondary trading of US dollar bonds. In December 2022, Deutsche and Rabobank faced further action from the EC for colluding in various euro-denominated secondary bond markets over 11 years to 2016 using online chatrooms. The EC imposed a €1.07bn fine on Barclays, Citigroup, JP Morgan, Mitsubishi UFJ Financial Group and RBS in May 2019 for traders rigging the FX market. In December 2016, the commission fined Credit Agricole, HSBC and JP Morgan a total of €485m for operating a euro Libor cartel.
Additional reporting by Helene Durand