Plaintiffs in market manipulation case dismiss claims against 15 Primary Dealers of US Treasuries

Maria Nikolova

HSBC Securities, Nomura Securities and RBC Capital Markets are among the 15 defendants to have the case against them dismissed.

A number of defendants in a market manipulation case targeting primary dealers of US Treasuries have had the claims against them dismissed. An order signed by Judge Paul G. Gardephe of the New York Southern District Court on February 15, 2018 stipulates that the claims are voluntarily dismissed against 15 defendants, including:

Bank of Nova Scotia, New York Agency; BMOCapital Markets Corp.; Cantor Fitzgerald & Co; CIBC World Markets Corp.; Commerz Markets LLC; Countrywide Securities Corp.; Daiwa Capital Markets America Inc.; Deutsche Bank Securities, Inc.; HSBC Securities (USA) Inc.; Jefferies LLC; Mizuho Securities USA Inc. (now known as Mizuho Securities USA LLC); Nomura Securities International, Inc.; RBC Capital Markets, LLC; SG Americas Securities LLC; and TD Securities (USA) LLC.

In the face of the dismissal of the claims against the above-mentioned parties, the number of defendants remains substantial. It still includes:

Bank of America Corp (NYSE:BAC); Barclays Capital Inc; Bear, Stearns & Co., Inc; BNP Paribas Securities Corp.; Citigroup Global Markets Inc; Credit Suisse Securities (USA) LLC; Goldman, Sachs & Co. LLC; J.P. Morgan Securities LLC; Merrill Lynch, Pierce, Fenner & Smith Inc; Morgan Stanley & Co. LLC; RBS Securities Inc; and UBS Securities LLC.

The defendants, all of which are or were Primary Dealers of Treasuries, are accused of taking part in a conspiracy, starting at least as early as January 1, 2007 and thereafter continuing, to fix and otherwise manipulate marketable US Treasury Bills, Notes, Bonds, Floating Rate Notes (FRNs), and Treasury Inflation-Protected Securities (TIPS) markets and related Auctions and derivative financial products, including Treasury-predicated futures and options traded on the Chicago Mercantile Exchange (CME).

There are three plaintiffs:

  • Breakwater Trading LLC, which at varying times throughout the Relevant Period, including from 2007-2009 was a top 15 liquidity provider for Treasuries.
  • BWT Professional Trading, LLC, which throughout the Relevant Period, BWT has often been a top trader in terms of volume in the When Issued Roll during monthly Treasury Auctions.
  • Endeavor Trading, LLC, which was, during portions of the Relevant Period, a top 20 liquidity provider for cash Treasuries.

The Defendants are alleged to have violated their market integrity obligations and otherwise abused their positions of trust to their own ends. They are accused to have conspired by, among other things, sharing confidential and competitively sensitive client order information to fix and otherwise manipulate the Treasuries and Treasuries-Predicated Instruments markets before, during, and after Treasuries Auctions.

The sharing of their respective price discovery information meant that Primary Dealers subvert the Auction process to the detriment of all other market participants. The unlawful sharing and aggregating of order flow information allegedly altered the fundamental risk landscape of Treasuries trading across the WI (when issued), Auction, and secondary Treasuries markets.

Importantly, when Defendants manipulated Treasuries prices downward in the Auction, there was a directly correlated artificial run-down in prices in related futures markets.

The manipulation practices were supported by Defendants’ routine hiring of each other’s Treasuries traders. Moreover, Primary Dealer Defendants are said to have shared their proprietary clients’ information with one another to coordinate their positions across all Treasuries instruments and derivatives trading.

All three plaintiffs claim that, as a result of the defendants’ collusion, manipulative conduct, and unlawful acts, Breakwater, BWT and Endeavor were injured in their business or property. The defendants are charged on seven counts, including violations of the Sherman Act, the Commodity Exchange Act, breaches of Implied Covenant of Good Faith and Fair Dealing, as well as unjust enrichment.

The plaintiffs are asking the court, inter alia, to award damages (three times overcharges) in an amount to be determined at trial, plus interest in accordance with law.

The case is captioned Breakwater Trading LLC et al v. Bank of America Corporation et al (1:17-cv-06497).

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