Boston’s public sector pension fund accuses all of the biggest US banks – the so-called “primary dealers” which transact directly with the United States Treasury Department and “have a special obligation to ensure the efficient function” of the American treasury bond market – of colluding to manipulate the $12.5 trillion U.S. Treasury market. The complaint alleges:
Defendants employed a two-pronged scheme to manipulate the Treasury securities market. First, Defendants used electronic chatrooms, instant messaging, and other electronic and telephonic methods to exchange confidential customer information, coordinate trading strategies, and increase the bid-ask spread in the when-issued market to inflate prices of Treasury securities they sold to the Class. Second, Defendants used the same means to rig the Treasury auction bidding process to deflate prices at which they bought Treasury securities to cover their pre-auction sales. Recent reports confirm that traders at some of these primary dealers “talked with counterparts at other banks via online chatrooms” and “swapped gossip about clients’ Treasury orders.
By engaging in this unlawful conduct, Defendants maximized the spread not only for transactions in the when-issued market, but also between their buy (auction) price and sell (when-issued) price.
This conduct lined the pockets of Defendants while raising prices to investors trading Treasury securities in the when-issued market, investors trading Treasury security-based futures and options, and investors transacting in instruments benchmarked to the prices of Treasury securities determined at auction, including certain bonds and other asset- backed securities and interest rate swaps.
Given the tight correlation between the Treasury securities prices in the spot market and futures markets, Defendants’ manipulation of the auction prices for Treasury securities also directly and proximately caused injury to individuals and entities that traded in Treasury futures and options on U.S. exchanges, including the Chicago Mercantile Exchange.
High-frequency trading has also long been used to manipulate the treasury market.
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