DoJ investigates SSA bond market rigging

As banks still reel from the fallout of the LIBOR scandal, an investigation into price collusion in bond markets has been launched

 
Traders at a number of banks are being investigated on the manipulation of prices in the SSA bond market 

The US Department of Justice is investigating traders at a number of banks, each said to have potentially been involved with the manipulation of prices in the supranational, sub-sovereign and agency (SSA) bond market. Among those named as being under investigation are traders from Credit Suisse, Crédit Agricole and Nomura. The accused have left their desks, awaiting the outcome of the investigation.

The traders are being investigation for allegations that they “agreed prices and shared information on certain US dollar bonds”, communicating through chatrooms that they had “established for the purpose, the sources said”, reported the International Financial Review.

Such SSA bonds – issued by Freddie Mac in the US and the European Investment Bank and German development bank KfW in Europe – have, according to the Financial Times, declined in recent years, shrinking by $1.4tn in the past four years. As the newspaper noted, “While SSA issuance remains a significant portion of global debt capital markets, banks tend to earn far lower fees on the deals than from other fixed income underwriting jobs.”

The use of private – or, not so private – chatrooms bears close resemblance to the LIBOR rate scandal, where collusion between employees at different banks resulted in the manipulation of prices. After a lengthy global investigation, a number of banks – including major names such as Deutsche Bank, JPMorgan and Lloyds – were hit with record fines by regulators in the hundreds of millions of dollars.

As a result of both the financial crisis and the LIBOR scandal, banks have come under even closer scrutiny in recent years. The investigation, said to still be still in its early phases, is being led by the DoJ, but is also receiving assistance from the UK’s Financial Conduct Authority.