Foreign Banks Subpoenaed Over Alleged Treasury Market Manipulation

Federal prosecutors have subpoenaed several (foreign) banks as part of a criminal investigation into possible manipulation of the U.S. Treasuries market, according to people familiar with the matter.

U.S. authorities have been examining the U.S. Treasuries market for roughly two years. As Bloomberg reports, in November 2015, Goldman Sachs 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.

And now, the Justice Department issued subpoenas last month to banks including UBS, BNP Paribas, and the Royal Bank of Scotland seeking information on the $14 trillion market, said two people, who asked not to be named because the investigation is confidential. Read more here...

As a reminder, 'When-issued' securities have been a government-debt market fixture since the U.S. Treasury Department effectively authorized their use in 1975. Investors can buy them from a Wall Street bond dealer to guarantee they will be able to get their hands on a bond, bill or note once it’s auctioned by the government. 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.

When debt sells for less than when-issued prices indicate, traders say the auction “tailed.” Auctions tailed more than half the time in every type of security except for the 10-year note between 2010 and 2014, a Cleveland pension fund alleged in one of the lawsuits against the primary dealers.


The chances that a supposedly predictive market would be so consistently off, in a direction that favors the people selling the security, is lower than 1 percent, the fund alleged.


The banks selling when-issued securities are often the same ones that receive billions of dollars’ worth of client bids for those same auctions. That raises the concern -- taken as a given in several of the recent suits -- that information is being shared within and between banks.

Traders working at some primary dealers had the opportunity to learn about client auction bids ahead of time and in some cases talked online to counterparts at other banks, people familiar with these operations told Bloomberg News in June 2015. That report is cited in several of the lawsuits alleging collusion related to when-issued securities.