French authorities have suspended Morgan Stanley from its prestigious function in dealing with the nation’s authorities bond auctions following the alleged manipulation of markets that earned the financial institution a €20m tremendous final 12 months.
Agence France Trésor, the company that manages French public debt, mentioned late on Monday it was revoking Morgan Stanley’s standing as a “main vendor” — one in every of a bunch of lenders that helps promote new authorities bonds — for a minimum of three months, citing trades by the financial institution 5 years in the past that “had the impact of significantly undermining the liquidity of the French sovereign bond market”.
Morgan Stanley additionally didn’t disclose in 2017 that France’s markets regulator was investigating the matter, in line with the assertion from the AFT.
The lack of main vendor standing means Morgan Stanley will not purchase bonds straight from the AFT in auctions of latest debt, a job that provides buying and selling desks a extra complete view of exercise in authorities bond markets. Fourteen banks stay on the French treasury’s record of main sellers.
In December, the Autorité des Marchés Financiers fined Morgan Stanley for “aggressively” buying futures contracts linked to French bonds, alleging it sought to trigger an “irregular and synthetic” enhance within the value of French and Belgian bonds in a bid to keep away from losses on its holdings.
The financial institution, which is interesting in opposition to the regulator’s resolution, mentioned it was “disenchanted” by its suspension by the state treasury.
A spokesman for the financial institution mentioned: “As one of many predominant main sellers specialising in French public debt for over 30 years, Morgan Stanley is absolutely targeted on working with the AFT to implement agreed remediation measures. We look ahead to resuming our partnership with the French state as an [primary dealer].”
The trades in query occurred on June 16 2015, at a time when fears of a Greek exit from the eurozone had been inflicting sharp swings in bond markets. Following the exercise within the futures market by the financial institution, its buying and selling desk offloaded greater than €1bn of French and Belgian bonds, the AMF mentioned in its resolution final 12 months.
A lawyer for Morgan Stanley mentioned final 12 months that the futures trades had been made to unwind hedges on its money place and had been too small to maneuver the market in money bonds.
The variety of main sellers in European authorities bonds has fallen lately, hitting its lowest on report in 2019, in line with commerce affiliation Afme. Banks have been struggling to show a revenue from this line of enterprise due to decrease buying and selling volumes and the huge portions of debt mopped up by the European Central Financial institution, Afme mentioned.