Major banks shared sensitive bonds information in online chats, CMA finds

The UK’s competition watchdog has provisionally found that five major banks broke competition law by unlawfully exchanging sensitive information about British government bond trading in online chatrooms.

In an investigation, the Competition and Markets Authority has found that the banks – Citi, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of Canada – shared competitively sensitive information on pricing and aspects of their trading strategies through multiple one-to-one online chats.

These discussions could have prevented taxpayers, savers and other financial institutions from getting the full benefit of competition for these products, according to the CMA.

In the aftermath of the global financial crisis, and at varying times between 2009 and 2013, a small number of traders working at the banks exchanged information in chatrooms on Bloomberg terminals relating to the buying and selling of UK government bonds, commonly referred to as gilts, according to the CMA.

The CMA found that traders discussed details of the pricing of gilts and gilt asset swaps, and also shared information about parts of their trading strategies.

The watchdog said some of the discussions took place around the context of British government bonds sold on behalf of the Treasury by the UK’s Debt Management Office – which sells gilts by auction – and the subsequent purchase and sale of gilts and gilt asset swaps, as well as so-called buyback auctions, where the Bank of England bought gilts as part of its quantitative easing programme.

The CMA found that the chats held between Deutsche Bank and HSBC did not involve any conduct about buyback auctions.

The watchdog found that the five banks involved in these conversations could have “denied the full benefits of competition to those they traded with”, which included pension funds and the UK Debt Management Office among others, as well as ultimately the Treasury and UK taxpayers.

Michael Grenfell, executive director of enforcement at the CMA, said the information sharing between the five banks “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. These alleged activities are therefore very serious and warrant the detailed investigation we have undertaken,” Grenfell added.

The CMA said it was alerted to the alleged unlawful behaviour by Deutsche Bank, under the CMA’s leniency policy, which can waive or reduce penalties in return for reporting cartel activity and assisting the watchdog, and Citi applied for leniency during the watchdog’s investigation.

Both banks have admitted their involvement in anti-competitive activity.

The CMA said that, providing Deutsche and Citi continued to cooperate and comply with its conditions of leniency, Deutsche would not be fined, while any fine received by Citi would be discounted.

Citi has also entered into a settlement agreement, meaning that it will receive a further discount to any fine imposed, providing it complies with the terms of the settlement.

skip past newsletter promotion

The CMA said its findings were provisional, and HSBC, Morgan Stanley and Royal Bank of Canada have not admitted any wrongdoing.

It added that “no assumption should be made that any of the banks have broken the law”.

The watchdog said its investigation continues. It will publish an infringement decision and could issue fines if it reaches a final conclusion that any two or more of the five banks engaged in anti-competitive activity.

A spokesperson for HSBC said: “HSBC refutes the CMA’s allegations. We will continue to make our case to the CMA as appropriate whilst we await a final decision.”

Royal Bank of Canada said: “While we disagree with the CMA’s provisional findings, we have cooperated fully with the CMA during its investigation, and take any allegation of employee misconduct very seriously.”

A spokesperson for Morgan Stanley said: “Morgan Stanley has cooperated fully with the CMA during this investigation and will continue to constructively engage in the process. However, we disagree with the CMA’s provisional allegations and intend to contest them.”


This website uses cookies. By continuing to use this site, you accept our use of cookies.