Antitrust: Commission fines investment banks € 28 million for participating in SSA bonds trading cartel

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This article is brought to you in association with the European Commission.


The European Commission has fined Bank of America Merrill Lynch, Crédit Agricole, and Credit Suisse a total of € 28 494 000 for breaching EU antitrust rules. Deutsche Bank was not fined as it revealed the existence of the cartel to the Commission.

The four banks took part in a cartel in the secondary trading market within the European Economic Area of Supra-sovereign, Sovereign and Agency (SSA) bonds denominated in US Dollars.

Executive Vice-President of the Commission Margrethe Vestager, in charge of competition policy said: “Today we have issued a decision against Bank of America Merrill Lynch, Crédit Agricole, Credit Suisse and Deutsche Bank, whose traders colluded on trading strategies, exchanged sensitive pricing information and coordinated on prices. The behaviour of the investment banks restricted competition in a market in which investment and pension funds regularly buy and sell bonds on behalf of their investors and pensioners. The cartel harmed the financial markets and today’s decision sends a clear message that the Commission will not tolerate any type of collusive behaviour.

The four investment banks participated in a cartel through a core group of traders working in their USD SSA bonds divisions, who were in regular contact with each other. A bond is a type of debt security that enables entities to raise cash. Bonds are issued on the primary market and then traded by financial institutions on the secondary market. On the secondary market, potential customers, such as investment and pension funds, approach the banks in order to get an independent quotation of price and quantity available of the bonds of a specific issuer. Bonds are distinguished by currency. This particular case refers to SSA bonds issued in US dollars.

The traders, who were in direct competition, typically logged into multilateral chatrooms or bilateral chatrooms on Bloomberg terminals. They knew each other on a personal basis, thus creating a closed circle of trust. They provided each other with recurring updates on their trading activities, exchanged commercially sensitive information, coordinated on prices shown to their customers, or to the market in general and aligned their trading activities on the secondary market for these bonds. The conduct took place during a five-year period and affected the trading of US denominated SSA bonds on the secondary market in the entire EEA.

The Commission’s investigation revealed that, further to coordination on prices quoted to specific clients or the market in general, the traders at times agreed:  

  • to refrain from bidding or offering, or to remove (or “kill”) a bid or offer from the market, when they might come into competition with one another;
  • to split trades between each other and combine or reduce their respective positions to meet a specific customer’s demand, without the customer being aware that it was dealing with more than one trader which meant that in practice the customer had limited choice;

The behaviour of the four banks violates EU rules that prohibit anticompetitive business practices such as collusion on prices (Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the EEA Agreement).

Together with previous cases involving cartels affecting the trading of financial instruments, today’s Decision demonstrates that the Commission remains determined to deal with anticompetitive practices in all markets, including the financial sector.

Fines

The fines were set on the basis of the Commission’s 2006 Guidelines on fines (see also MEMO).

In setting the level of fines, the Commission took into account, in particular, the sales value in the EEA achieved by the cartel participants for the products in question, the serious nature of the infringement, its geographic scope and the respective duration of participation.

Under the Commission’s 2006 Leniency Notice Deutsche Bank received full immunity for revealing the cartel, thereby avoiding a fine of around € 21 500 000.

The breakdown of the fines imposed on each company is as follows:

CompanyFine (€)
Deutsche Bank0
Bank of America Merrill Lynch12 642 000
Crédit Agricole3 993 000
Credit Suisse11 859 000

Background on bond markets

Bonds are first issued on the “primary market” for sale to investors through auctions or syndicates. Subsequently, bonds are traded between banks, brokers and investors on the “secondary market”. Bonds can be distinguished by the identity of the issuer and the currency in which they are denominated. The trading desks of banks are organised accordingly. “SSA bonds” is an umbrella term for three types of bonds:

(i) Supra-sovereign bonds issued by supranational institutions or agencies, for example the European Investment Bank;

(ii) Sovereign bonds issued by central governments under another law than their domestic law and/or in other currencies than domestic currencies (such as bonds issued in US Dollars by European governments); and

(iii) Agency (sub-sovereign) bonds issued by government-related agencies and public authorities below the level of national government, for example regional development banks.

Procedural Background

Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the EEA Agreement prohibit cartels and other restrictive business practices, including collusion on purchasing prices.

The Commission’s investigation in this case started in August 2015 with an application under the Commission’s 2006 Leniency Notice submitted by Deutsche Bank.

Fines imposed on companies found in breach of EU antitrust rules are paid into the general EU budget. This money is not earmarked for particular expenses, but Member States’ contributions to the EU budget for the following year are reduced accordingly. The fines therefore help to finance the EU and reduce the burden for taxpayers. In accordance with Article 141(2) of the EU-UK Withdrawal Agreement, this case is a “continued competence case”. The EU shall therefore reimburse the UK for its share of the amount of the fine once the fine has become definitive.

More information on this case will be available under the case number AT.40346 in the public case register on the Commission’s competition website, once confidentiality issues have been dealt with. For more information on the Commission’s action against cartels, see its cartels website.

Action for damages

Any person or company affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. The case law of the Court and Council Regulation 1/2003 both confirm that in cases before national courts, a Commission decision constitutes binding proof that the behaviour took place and was illegal. Even though the Commission has fined the cartel participants concerned, damages may be awarded without being reduced on account of the Commission fine.

The Antitrust Damages Directive, which Member States had to transpose into their legal systems by 27 December 2016, makes it easier for victims of anti-competitive practices to obtain damages. More information on antitrust damages actions, including a practical guide on how to quantify antitrust harm, is available here.

Whistleblower tool

The Commission has set up a tool to make it easier for individuals to alert it about anti-competitive behaviour while maintaining their anonymity. The tool protects whistleblowers’ anonymity through a specifically-designed encrypted messaging system that allows two way communications. The tool is accessible via this link.

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