Tags: Trump Administration | Bond | Cheating | Probe | Test | Trump | White House

FT: US Bond Cheating Probe Could Be 'Momentus' Test for Trump

FT: US Bond Cheating Probe Could Be 'Momentus' Test for Trump

By    |   Monday, 15 May 2017 08:42 AM

Fallout from a two-year Department of Justice investigation into cheating in the $16 trillion market for U.S. government debt reportedly could be the biggest political and financial test for the Trump administration.

Federal prosecutors have recently subpoenaed several banks as part of a criminal investigation into possible manipulation of the U.S. Treasuries market, people familiar with the matter told Bloomberg.

UBS Group AG, BNP Paribas SA and the Royal Bank of Scotland Group Plc received subpoenas last month seeking information on the $14 trillion market, the people said. New York-based Morgan Stanley has also received a subpoena, one person told Bloomberg.

A series of class action lawsuits have accused various banks and brokerages of conspiring to manipulate U.S. Treasury auctions, Reuters reported.

The lawsuits have alleged that the banks colluded to manipulate Treasury Department auctions and the pricing of Treasury securities, as well as derivative products such as futures, whose value is pegged to the Treasury.

The Justice Department has been examining the U.S. Treasuries market for roughly two years. In November 2015, Goldman Sachs Group Inc. disclosed that U.S. authorities had sought information related to its trading of when-issued securities, which are among the least transparent instruments in the world’s largest debt market.

When-issued securities act as placeholders for bills, notes or bonds before they’re auctioned. The instruments change hands over the counter, with lifespans of just days. There’s scant public information on trading volumes or the market’s biggest players.

“This is in a sense the Big Kahuna,” Robert Hockett, a Cornell University law professor and Federal Reserve consultant, told the Financial Times. “It’s the most important of all systemically important prices. If you can’t trust the Treasury market? That’s momentous,” he said.

“As in earlier price manipulation scandals involving the Libor and currency exchange rates, investors have filed lawsuits alleging that major banks took advantage of opaque Treasury markets to profit at the expense of their customers,” the Financial Times reported.

“But if federal prosecutors confirm the claims of cheating on Treasuries, the fallout — for both the big banks and the Trump administration — could dwarf those of the earlier frauds,” the Times reported.

The Justice Department in late 2015 asked about when-issued securities as part of broader requests for documents it sent to most or all of the roughly two dozen primary dealers in U.S. Treasuries, a person familiar with the matter told Bloomberg at the time. UBS, BNP Paribas and RBS are primary dealers in U.S. Treasuries. Authorities haven’t accused any of the banks of wrongdoing.

Trading of these instruments is also the subject of several lawsuits against primary dealers filed since July 2015. In them investors allege that traders at global banks colluded to artificially inflate the price of the when-issued securities, which allow the banks to sell U.S. debt before they own it. Then they bought the debt at auctions for an artificially suppressed price, unfairly profiting at investors’ expense, the lawsuits contend. The banks are scheduled to file motions to dismiss those lawsuits once the lead counsel for the plaintiffs is chosen.

UBS has flagged a probe related to U.S. Treasury securities in its earnings reports.

"UBS and reportedly other banks are responding to investigations and requests for information from various authorities regarding U.S. Treasury securities and other government bond trading practices," the Swiss bank said in its latest quarterly report last month.

(Newsmax wires services contributed to this report).

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Fallout from a two-year Department of Justice investigation into cheating in the $16 trillion market for U.S. government debt reportedly could be the biggest political and financial test for the Trump administration.Federal prosecutors have recently subpoenaed several banks...
Bond, Cheating, Probe, Test, Trump, White House
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2017-42-15
Monday, 15 May 2017 08:42 AM
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