Es is a small, exclusive club of domestic and foreign banks that meets every two weeks on the ninth floor of a building of the French Ministry of Finance. Agence France Trésor, the French government debt issuing authority, regularly meets the representatives of the banks that are the first to write France’s government debt and then resell it. The American bank Morgan Stanley has now been removed from the list of these fifteen “primary dealers” (“Specialists en Valeurs du Trésor, SVT”). This is what Agence France Trésor decided on Tuesday, on behalf of the French Ministry of Finance. Because, according to an investigation by the French stock exchange regulator, Morgan Stanley is said to have manipulated the prices of the debt instruments.
The events occurred five years ago. On the morning of June 16, 2015, Morgan Stanley traders in London “aggressively” bought a large amount of futures contracts on French and German government bonds on the Eurex trading platform, according to information from stock exchange regulators. A quarter of an hour later, they resold the contracts on the electronic platforms MTS France, BrokerTec and MTS Belgium for a total of 1.15 billion euros. The exchange regulator is of the opinion that the transaction only served to manipulate prices. The purchase of a large amount of futures contracts via Eurex artificially drove the price up, which Morgan Stanley could take advantage of shortly thereafter when selling on the other platforms.
Bank paid fine of 20 million euros in 2019
The transaction gave other market participants a false picture of the “true” relationship between supply and demand for French government bonds. The purchase of large amounts of futures contracts did not follow the usual strategy at Morgan Stanley’s European dealer table in London, it is said. The bank had to pay a fine of 20 million euros for the violations in December 2019. The debt agency also accused Morgan Stanley of not immediately informing her of the stock market regulator’s investigation in 2017.
The exclusion of the American bank as a primary dealer is initially only valid for three months. However, it is not only painful for the bank’s reputation. The business as a primary dealer is considered a safe source of income because French government bonds are sought-after securities that are easy to resell with a profit margin. The banks also like to maintain good relationships with the Ministry of Finance.
The bank recalled Tuesday that it had appealed the fine. Last November, she argued that it was not about price manipulation, but about reducing a large position in contracts that had arisen in trading for a large Japanese customer. In the wake of speculation at the time about Greece’s exit from the euro, the bank would have taken great risks had it kept large amounts of European government bonds, Morgan Stanley said.
The American bank has been one of France’s primary dealers for thirty years. She is now working closely with the French debt agency to find measures to prevent such incidents from happening again, she said on Tuesday.