Deutsche Bank (DB) and Citigroup (C) on Wednesday admitted to trading sensitive information on U.K. government bonds between 2009 and 2013, and were among five banks—including HSBC (HSBC), Morgan Stanley (MS), and Royal Bank of Canada (RY)—found in breach of U.K. competition law.
A small number of traders from each of the banks illegally exchanged information about pricing and trading strategies of U.K. gilts and gilt asset swaps via private one-on-one Bloomberg chat rooms, said the U.K.'s competition regulator Competition and Markets Authority (CMA).
These actions likely had adverse effects on the banks’ clients and customers, including the U.K. Debt Management Office (which issues gilts by auction), pension funds, and ultimately the U.K. Treasury and taxpayers, by denying the full benefits of market competition which include lower 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 U.K.’s reputation as a global financial hub. These alleged activities are therefore very serious and warrant the detailed investigation we have undertaken," said Michael Grenfell, Executive Director of Enforcement at the CMA.
Due to their cooperation with regulators, Deutsche Bank could be spared a fine, while any fine Citigroup receives will be discounted. The other three banks haven’t issued any statements admitting wrongdoing, and could be subject to fines once the regulator publishes an infringement notice.
Shares of Citigroup were down about 3%, while Deutsche Bank stock traded about 1% lower in early trading Wednesday. Deutsche Bank shares are down 5% so far this year, while those of Citigroup are up just under 4%, outperforming the broader financial sector, which is also down 5% over the same period.