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.
On 28 June 2006, The European Commission has adopted Guidelines on the method of setting fines to be imposed on companies that infringe EC Treaty rules that outlaw cartels and other restrictive business practices and abuses of dominant position. ECOPNET (European Cooperation and Partnership Network) would like to inform its followers on whistleblower tool that is introduced by the Commission to make it easier for individuals to be alerted about anti-competitive behaviour while maintaining their anonymity.
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.
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.
Source: European Commission Press Corner