HSBC and 4 other banks broke UK competition law with bond-trading communications: regulator

HSBC and four other large banks broke UK competition law by sharing "competitively sensitive information" in chat rooms while trading British government bonds, according to a provisional finding by the United Kingdom's Competition and Markets Authority (CMA).

Information was shared in one-to-one Bloomberg chat rooms between a small number of traders at Citigroup, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of Canada (RBC) between 2009 and 2013, including details on pricing and trading strategies for UK government bonds, known as gilts, and gilt asset swaps, according to the regulator.

"This [activity] could have denied taxpayers, pension savers and financial institutions the benefits of full competition for these products, including the minimisation of borrowing costs," Michael Grenfell, the CMA's executive director of enforcement, said in a statement.

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The HSBC allegations refer specifically to a former HSBC trader sharing information with a Deutsche Bank trader regarding gilts between October 2009 and July 2010.

An HSBC branch in Hong Kong's Pedder Street. Photo: Elson Li alt=An HSBC branch in Hong Kong's Pedder Street. Photo: Elson Li>

"HSBC refutes the CMA's allegations," a spokesperson for HSBC, the largest of Hong Kong's three currency-issuing banks, said. "We will continue to make our case to the CMA as appropriate whilst we await a final decision."

Deutsche Bank alerted the CMA to the alleged unlawful activity and Citi applied for leniency during the inquiry, with both banks admitting to being involved in anticompetitive behaviour, the CMA said. The inquiry began in November 2018.

"Deutsche Bank proactively reported the issue to the UK authority and has cooperated fully in the subsequent investigation, which related to activity prior to 2014," the bank said in a statement.

Provided that the banks continue to cooperate and comply with the conditions of leniency, Deutsche Bank will avoid a fine and any fine issued to Citi would be discounted, the CMA said.

Citi has also entered a settlement agreement with the CMA, which would entitle it to a further reduction in any fine imposed. "We have cooperated fully with the CMA on this matter and are pleased to put it behind us," a Citi spokesperson said.

The Deutsche Bank headquarters in Frankfurt. The lender will avoid a fine provided that it continues to cooperate and comply with the conditions of leniency. Photo: EPA-EFE alt=The Deutsche Bank headquarters in Frankfurt. The lender will avoid a fine provided that it continues to cooperate and comply with the conditions of leniency. Photo: EPA-EFE>

RBC, HSBC and Morgan Stanley have not admitted to wrongdoing in the matter.

RBC said it has "cooperated fully" with the CMA's investigation and takes any allegations of employee misconduct very seriously. Morgan Stanley said it cooperated fully with the investigation, but disagreed with the provisional findings and intends to contest them.

The regulator said its inquiry is ongoing and it will publish an infringement decision and may issue fines if it reaches a final conclusion that two or more banks engaged in anticompetitive behaviour. The banks have the opportunity to respond to the provisional findings before the CMA makes its final decision in the matter.

The information sharing at issue is related to the sale of gilts by the UK Debt Management Office via auctions on behalf of the Treasury, subsequent buying and selling of gilts and gilt asset swaps and, in some cases, buy-back auctions of gilts by the Bank of England (BOE), including during the central bank's quantitative easing efforts, the CMA said.

The contacts between Deutsche Bank and HSBC did not include the BOE buy-back auctions, the regulator said.

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