French authorities have suspended Morgan Stanley from its prestigious role in handling the country’s government bond auctions following the alleged manipulation of markets that earned the bank a €20m fine last year.
Agence France Trésor, the agency that manages French public debt, said late on Monday it was revoking Morgan Stanley’s status as a “primary dealer” — one of a group of lenders that helps sell new government bonds — for at least three months, citing trades by the bank five years ago that “had the effect of seriously undermining the liquidity of the French sovereign bond market”.
Morgan Stanley also failed to disclose in 2017 that France’s markets regulator was investigating the matter, according to the statement from the AFT.
The loss of primary dealer status means Morgan Stanley will no longer buy bonds directly from the AFT in auctions of new debt, a role that gives trading desks a more comprehensive view of activity in government bond markets. Fourteen banks remain on the French treasury’s list of primary dealers.
In December, the Autorité des Marchés Financiers fined Morgan Stanley for “aggressively” purchasing futures contracts linked to French bonds, alleging it sought to cause an “abnormal and artificial” increase in the price of French and Belgian bonds in a bid to avoid losses on its holdings.
The bank, which is appealing against the regulator’s decision, said it was “disappointed” by its suspension by the state treasury.
A spokesman for the bank said: “As one of the main primary dealers specialising in French public debt for over 30 years, Morgan Stanley is fully focused on working with the AFT to implement agreed remediation measures. We look forward to resuming our partnership with the French state as an [primary dealer].”
The trades in question took place on June 16 2015, at a time when fears of a Greek exit from the eurozone were causing sharp swings in bond markets. Following the activity in the futures market by the bank, its trading desk offloaded more than €1bn of French and Belgian bonds, the AMF said in its decision last year.
A lawyer for Morgan Stanley said last year that the futures trades had been made to unwind hedges on its cash position and were too small to move the market in cash bonds.
The number of primary dealers in European government bonds has fallen in recent years, hitting its lowest on record in 2019, according to trade association Afme. Banks have been struggling to turn a profit from this line of business because of lower trading volumes and the vast quantities of debt mopped up by the European Central Bank, Afme said.
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