EU imposes fines for bond trading cartel


EU imposes fines of €371 million for bond trading cartel

Home Insights EU imposes fines of €371 million for bond trading cartel

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Contributed by: Troy Pilkington, Bradley Aburn, Lina Kim and Sophie Vinicombe

Published on:

Published on: May 21, 2021


Ever since the Global Financial Crisis (GFC), competition law regulators around the world have been scrutinising conduct in the financial sector. Overnight, the European Commission (EC) fined seven banks a total of €371 million for engaging in cartel conduct in relation to the primary and secondary trading of European Government Bonds (EGB).[1]

Following the GFC, many European Central Banks issued EGBs to raise funds in international capital markets. The EGBs were first issued on the primary market where a limited number of investment banks were invited to participate in auctions to acquire the EGBs. The investment banks would then distribute the EGBs by placing and trading them on the secondary market.

Instead of competing with one another to acquire the EGBs on the primary market and then competing to sell them on the secondary market, the seven banks were found to have operated through a group of traders from their respective EGB desks, participating in a "closed circle of trust". The traders were found to have used Bloomberg chatrooms to share competitively sensitive information about what their bidding strategy was (including with respect to prices and volumes), as well as the trading parameters on the secondary market (including the prices they would be showing to their customers). This conduct took place between 2007 and 2011, during the financial crisis.

The EC has made clear that the financial sector remains a target industry, commenting that:

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

What does this decision mean for financial institutions in New Zealand?

The full EC decision is yet to be published, which may shed more light on the case to inform how a court would approach similar circumstances in a New Zealand context. However, based on what is already in the public domain, it is likely that similar conduct in New Zealand would be caught by the Commerce Act's cartel prohibition. Since 8 April this year, individuals who intentionally engage in cartel conduct can be criminally prosecuted and sentenced to up to seven years imprisonment and/or a fine of up to $500,000 (see our previous alert).

It is therefore important that financial institutions are aware of these risks and that, where collaboration with competitors is required to meet the needs of issuers, such arrangements are appropriately structured to fall within the collaborative activities exception. Cartel provisions (i.e. agreements between competitors that fix prices, restrict output and/or divide up markets) are legal provided they are reasonably necessary for the purposes of collaborative activity and do not otherwise substantially lessening competition in a market.

Our team is experienced in advising financial institutions on how to appropriately structure competitor collaborations to enable them to benefit from the exception. If you would like to know more about how to mitigate competition law risks in the financial services sector, please contact one of the authors below.


  [1] Press release available here

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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