The Competition and Markets Authority (CMA) has provisionally found that 5 major banks – Citi, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of Canada – each unlawfully shared competitively sensitive information by participating in one or more series of one-to-one conversations in chatrooms.
The alleged behaviour took place at varying times between 2009 and 2013 (see Table 1).
The information exchanges took place in one-to-one Bloomberg chatrooms between a small number of traders who worked at the banks and related to the buying and selling of UK government bonds - specifically, gilts and gilt asset swaps. This included details on pricing and other aspects of their trading strategies.
The exchanges of information occurred in the context of, some or all of:
the sale of gilts by the UK Debt Management Office via auctions on behalf of HM Treasury;
the subsequent buying and selling of gilts and gilt asset swaps;
buy-back auctions of gilts by the Bank of England (for example, for quantitative easing). The contacts between Deutsche Bank and HSBC did not involve any conduct in relation to buy-back auctions.
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 - including, among others, pension funds, the UK Debt Management Office (which sells gilts by auction), and ultimately HM Treasury and UK taxpayers.
Deutsche Bank alerted the CMA to its participation in the alleged unlawful behaviour under the CMA’s leniency policy, and Citi applied for leniency during the CMA’s investigation. Both banks have admitted their involvement in anti-competitive activity and, providing they continue to cooperate and comply with the conditions of leniency, Deutsche Bank will not be fined and any fine that Citi receives will be discounted.
Citi has also entered into a settlement agreement with the CMA and, providing it complies with the terms of settlement, will receive a further discount to any fine imposed.
The CMA’s probe is ongoing and if the CMA reaches a final conclusion that any 2 or more of the banks engaged in anti-competitive activity, the CMA will publish an infringement decision and may issue fines.
Michael Grenfell, Executive Director of Enforcement at the CMA, said:
Our provisional decision has found that, in the aftermath of the global financial crisis, 5 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. 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. These alleged activities are therefore very serious and warrant the detailed investigation we have undertaken. 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.
The CMA’s findings are provisional. Deutsche Bank and Citi have admitted to participating in the alleged one-to-one conversations that apply to them. HSBC, Morgan Stanley and Royal Bank of Canada have not admitted any wrongdoing. At this stage, no assumption should be made that any of the banks have broken the law.