Bond Investors' Suit Claims Dealers Colluded on Treasurys Prices
November 16 2017 - 6:38PM
Dow Jones News
By Daniel Kruger
Some of the largest bond trading firms on Wall Street boosted
profits by colluding to set prices at auctions of government debt,
according to an amended complaint to a lawsuit filed by a group of
investors.
The new complaint, dated Thursday and listing multiple pension
funds among the plaintiffs, says some of the dealers helped protect
the profitability of their trading operations by impeding the
development of trading platforms that would have improved the
investors' access to larger pools of buyers and sellers of the
debt.
The complaint, filed in the U.S. District Court for the Southern
District of New York, amends a 2015 lawsuit that claimed bond
dealers -- including Bank of America Corp., Citigroup and J.P.
Morgan Chase & Co. -- were manipulating government bond
auctions to boost profits. Spokesmen for the banks and dealers
named in the suit declined to comment Thursday.
Any action that raises costs for investors at U.S. government
bond auctions would lower their returns, the filing said. The
amended complaint was first reported by the New York Post.
While the $14 trillion market for U.S. government bonds is
widely considered by investors to be the deepest and most liquid in
the world, the suit claims that dealers maintained a relatively
transparent and anonymous trading system for themselves, while
forcing investors to place buy and sell orders through the
investment banks and disclosing their identities to the
dealers.
Bond dealers threatened to boycott trading platforms overseen by
eSpeed and BrokerTec, where the dealers executed a significant
amount of trades, to force the trading platforms to exclude
investment firms such as Pacific Investment Management Co., the
complaint said.
This boycott was intend to restrict investors to the less
efficient and transparent trading systems, which had the effect of
raised trading costs for investors and hindering the market's
evolution, the filing said. Had the banks allowed investors to
trade freely, bond trading might have evolved in the direction of
an open exchange where any kind of firm could have traded with any
other, as occurs in the stock market, the complaint said.
The original complaint alleged that bond dealers were
manipulating the Treasury bond auctions by sharing information
about client orders in chat rooms. By sharing information about
client orders, the investment banks could submit their own bids to
buy securities at the lowest price possible.
Bond firms would also be able to use client order information to
gauge how the securities would trade after the auction, and would
be able to adjust their own trading accordingly, plaintiffs
said.
The defendants include Bank of America Corp., Barclays PLC, BNP
Paribas SA, Credit Suisse Group AG, Citigroup Inc., Goldman Sachs
Group Inc., J.P. Morgan Chase & Co., Morgan Stanley, Royal Bank
of Scotland Group PLC, UBS Group AG and Tradeweb Markets LLC.
"They acted as a cartel to block any development of the market"
toward more open trading and transparent pricing, said Dan
Brockett, an attorney with Quinn Emanuel Urquhart & Sullivan,
LLP who is representing the plaintiffs.
(END) Dow Jones Newswires
November 16, 2017 18:23 ET (23:23 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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