Tuesday 10 December 2019 10:41 am

Morgan Stanley fined €20m as French regulator accuses it of sovereign bond price manipulation

Morgan Stanley has been issued a €20m (£16.8m) fine by French regulators after its London desk faced accusations of using “pump and dump” tactics to manipulate sovereign bond prices.

France’s stock market regulator, the Autorite des Marches Financiers (AMF), said the bank manipulated prices on 14 French government bonds and eight Belgian bonds in June 2015.

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Morgan Stanley also manipulated the price of a French government bonds futures contract, the regulator said this morning.

“The seriousness of the infringements is also reinforced by the sophistication of the contentious transactions conducted by the traders,” the watchdog said. 

“The traders on the desk knew that on June 16, 2015 there was high volatility and low liquidity on the market, which would necessarily increase the impact of their operations.”

Last month, investigators from AMF said the bank’s London desk was long on French bonds and held short positions on German debt, betting that the yield spread would narrow. 

But the opposite scenario happened, when the fallout from Greece’s economic crisis spread, causing the desk to lose nearly $15m over two days in June 2015. 

In a bid to narrow losses – and steer clear of a $20m loss-limit imposed by Morgan Stanley management, the London desk allegedly picked up futures on French bonds on 16 June that year. 

AMF said this was with the sole objective of increasing the market value of French and Belgian bonds before aggressively selling the latter.

Morgan Stanley has said it will appeal the decision.

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“The activities in question were undertaken in accordance with market practice and as part of the firm’s role and obligations as a market maker and Morgan Stanley remains confident that it has acted in the best interests of the market and its clients,” the bank said.

During the hearing, Morgan Stanley said it “absolutely and categorically rejects the AMF’s allegations.”