Following investigations by the DOJ and the FCA into a possible cartel of EU banks, the European Commission (EC) launched a probe into the possible rigging of the supranational, sub-sovereign and agency (SSA) debt market.
The allegations suggest that the prices for bonds issued by European agencies such as the EBRD, and certain national and supranational issuers such as Germany’s Länders, may have been manipulated in the secondary market. Traders at various banks, including Bank of America, Credit Agricole, Credit Suisse and Nomura, have been suspended and are currently being investigated by the DOJ.
By operating as a cartel the banks were able to achieve supra-competitive profits without the concern of losing their market share.
The EC has begun a preliminary investigation and has sent questionnaires to the leading players in the supranational, sub-sovereign and agency debt market. The questionnaires are likely to be used to determine if further investigation or the opening of cartel proceedings is warranted. If it is established that reasonable suspicions exist, a formal investigation will start. These investigations can typically take up to 4-5 years to be completed. Once an investigation is completed and results in findings of infringement, the EC possesses the power to fine an organization up to 10% of their annual turnover.
Banks and other brokers, including ICAP, have so far been fined over $20 billion in other rigging scandals such as ISDAfix and LIBOR.
Please read the full research alert from Fideres here.