The SSA Claim

On 28 April 2021, the European Commission imposed fines on investment banks for taking part in a cartel in the secondary trading market of Supra-sovereign, Sovereign, and Agency (SSA) bonds. Bank of America Merrill Lynch, Crédit Agricole, Credit Suisse, and Deutsche Bank participated in a cartel through a core group of traders working in their USD SSA bonds divisions, who were in regular contact with each other.

A bond is a type of debt security that enables entities to raise cash. Bonds are issued on the primary market and then traded by financial institutions on the secondary market. On the secondary market, potential customers, such as investment and pension funds, approach the banks in order to get an independent quotation of the price and quantity available of the bonds of a specific issuer. Bonds are distinguished by currency. This particular case refers to SSA bonds issued in US dollars.

The traders, who were in direct competition, typically logged into multilateral chatrooms or bilateral chatrooms on Bloomberg terminals. They knew each other on a personal basis, thus creating a closed circle of trust.

The traders provided each other with recurring updates on their trading activities, exchanged commercially sensitive information, coordinated on prices shown to their customers, or to the market in general, and aligned their trading activities on the secondary market for these bonds.

The Commission’s investigation revealed that further to coordination on prices quoted to specific clients or the market in general, the traders at times agreed: (i) to refrain from bidding or offering, or to remove (or “kill”) a bid or offer from the market, when they might come into competition with one another; and (ii) to split trades between each other and combine or reduce their respective positions to meet a specific customer’s demand, without the customer being aware that it was dealing with more than one trader which meant that in practice the customer had limited choice.

The behaviour of the four banks violates EU rules that prohibit anticompetitive business practices such as collusion on prices, and exchange of commercially sensitive information between competitors.

Bonds are first issued on the “primary market” for sale to investors through auctions or syndicates. The primary dealers then place and trade the bonds with other investors on the secondary market. These investors include other banks, asset managers, pension funds, hedge funds, and major companies. They can hold the bonds as investments or further trade them via brokers like any other financial instrument.

Bonds can be distinguished by the identity of the issuer and the currency in which they are denominated. The trading desks of banks are organised accordingly. “SSA bonds” is an umbrella term for three types of bonds:

(i) Supra-sovereign bonds issued by supranational institutions or agencies, for example, the European Investment Bank;

(ii) Sovereign bonds issued by central governments under another law than their domestic law and/or in other currencies than domestic currencies (such as bonds issued in US Dollars by European governments); and

(iii) Agency (sub-sovereign) bonds issued by government-related agencies and public authorities below the level of national government, for example, regional development banks.

Any person or company affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. The case-law of the Court and Council Regulation 1/2003 both confirm that in cases before national courts, a Commission decision constitutes binding proof that the behaviour took place and was illegal.

This legal action is seeking to return hundreds of millions of pounds to pension funds, asset managers, hedge funds, and corporates from around the world who were affected by the SSA cartel. The fact that Deutsche Bank was not fined as it revealed the existence of the cartel to the Commission, does not mean it cannot be held liable for damages.

In accordance with the EU-UK Withdrawal Agreement, the European Union continues to be competent for this case which was initiated before the end of the transition period (“Continued Competence Case”). The EU shall reimburse the UK for its share of the amount of the fine once the fine has become definitive. The collection of the fine, the calculation of the UK’s share, and the reimbursement will be carried out by the European Commission.

Under Article 92 of the Agreement, the Commission remains competent for ongoing administrative procedures relating to competition in the UK, that may impact trade between the EU Member States, provided these procedures were initiated before the end of the transition period (31 December 2020). Decisions issued by the EC in Continued Competence Cases are binding on the UK and any appeals are subject to review only by the EU courts.