Antitrust: Commission fines investment banks € 371 million for participating in a European Governments Bonds trading cartel

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


The European Commission has found that Bank of America, Natixis, Nomura, RBS (now NatWest), UBS, UniCredit and WestLB (now Portigon) have breached EU antitrust rules through the participation of a group of traders in a cartel in the primary and secondary market for European Government Bonds (‘EGB’).

Fines totalling € 371 million are imposed on Nomura, UBS and UniCredit. NatWest was not fined as it revealed the cartel to the Commission. Bank of America and Natixis are not fined either because their infringement falls outside the limitation period for imposition of fines. Portigon, the legal and economic successor of WestLB, received a zero fine as it did not generate any net turnover in the last business year which served as a cap to the fine.

Executive Vice-President of the Commission Margrethe Vestager, in charge of competition policy said: “A well-functioning European Government Bonds market is paramount both for the Eurozone Member States issuing these bonds to generate liquidity and the investors buying and trading them. Our decision against Bank of America, Natixis, Nomura, RBS, UBS, UniCredit and WestLB sends a clear message that the Commission will not tolerate any kind of collusive behavior. It is unacceptable, that in the middle of the financial crisis, when many financial institutions had to be rescued by public funding these investment banks colluded in this market at the expense of EU Member States.

The seven investment banks participated in a cartel through a group of traders working on their EGB desks and operating in a closed circle of trust. These traders were in regular contact with each other mainly in multilateral chatrooms on Bloomberg terminals. In these chatrooms, the relevant traders exchanged commercially sensitive information. They informed and updated each other on their prices and volumes offered in the run up to the auctions and the prices shown to their customers or to the market in general. They discussed and provided each other with recurring updates on their bidding strategy in the run up to the auctions of the Eurozone Member States when issuing Euro denominated bonds on the primary market, and on trading parameters on the secondary market.

The conduct partially took place during the financial crisis and more specifically between 2007 and 2011, and affected the entire European Economic Area (‘EEA’).

The behaviour of the seven 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, including that the cartel related to a Euro-based financial product on the primary and secondary market, its geographic scope and the respective duration of participation.

The fines imposed for the cartel are as follows:

CompanyDuration of participationFine (€)
Bank of America29.01.2007 – 06-11.2008N/A (outside limitation period)
Natixis26.02.2008 – 06.08.2009N/A (outside limitation period)
NatWest (RBS)04.01.2007 – 28.11.20110 (immunity from fines)
Nomura18.01.2011 – 28.11.2011129 573 000
UBS04.01.2007 – 28.11.2011172 378 000
UniCredit09.09.2011 – 28.11.201169 442 000
Portigon (WestLB)19.10.2009 – 03.06.20110 (fine capped to 10% of turnover)

Individual fines were reduced or not imposed for the following reasons:

  • NatWest received full immunity for revealing the cartel, thereby avoiding an aggregate fine of ca. 260 million
  • UBS was benefitted from reduction of its fine by 45% for its cooperation with the Commission investigation.
  • Portigon’s fine of 4 888 000 was reduced to zero because fines cannot exceed 10% of the total turnover and the undertaking did not generate any net turnover in the last business year.
  • No fines were imposed on Bank of America and Natixis, because these undertakings left the cartel more than five years before the Commission started its investigation. They therefore fall outside the limitation period for imposition of fines, but this does not prevent the Commission from establishing their participation in the infringement. Natixis cooperated with the Commission under the leniency program.

Background on European Government Bonds

European Government Bonds or EGB are debt securities issued in Euro by the central governments of the Eurozone Member States. The governments issue EGB to raise funds in international financial markets: they borrow money for a fixed term and predefined interest rate. The bond holder periodically receives the interest (coupon) and the principal amount at the agreed maturity date.

Bonds are first issued on the primary market where a limited number of investment banks, the ‘primary dealers’ can bid for the bonds in auctions or sometimes acquire them via syndication. The primary dealers then place and trade the bonds with other investors on the secondary market. These investors include other banks, asset managers, pension funds, hedge funds and major companies. They can hold the bonds as investments or further trade them via brokers like any other financial instrument.

Procedural Background

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

The Commission’s investigation in this case started in July 2015 with an application under the Commission’s 2006 Leniency Notice submitted by NatWest (then named RBS).

Fines imposed on undertakings 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 the EU-UK Withdrawal Agreement, the Union continues to be competent for this case which was initiated before the end of the transition period (“continued competence case”). The EU shall reimburse the UK for its share of the amount of the fine once the fine has become definitive. The collection of the fine, the calculation of the UK’s share and the reimbursement will be carried out by the Commission.

More information on this case will be available under the case number AT.40324 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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