Brokertec confirms probe by US antitrust officials
5/15/02 7:00 PM
Source: Reuters
By Chris Sanders
NEW YORK, May 15 (Reuters) - The U.S. Justice Department is investigating alleged anti-competitive practices by the electronic bond broker BrokerTec, a major player in the U.S. Treasury market, the company said on Wednesday.
The European and Wall Street banks that own the bond broker allegedly steered their Treasury bond trades to BrokerTec and away from competitors, according to sources familiar with the investigation who asked to remain anonymous.
BrokerTec surged to the top, becoming the second largest firm in the $160 billion-per-day market for U.S. Treasury bonds traded between dealers, in a matter of months last year, leaving many of its competitors and other industry experts wondering how they did it.
BrokerTec said in a statement that in the past other electronic trading firms have received Civilian Investigative Demands (CIDs), the civil equivalent of subpoenas, from the Department of Justice (DOJ) and added that they, "also received such a request from DOJ, have already responded to the request, and, as with any regulatory matter, will continue to cooperate completely."
A source familiar with the probe said, "They are looking at their (BrokerTec's) success."
"It seems to be built on specific agreements that removed any form of competition," the source said.
There was no one immediately available to comment at the Justice Department.
The news comes as the anti-trust chiefs of the European Union and United States said they are investigating whether a group of the world's largest banks tried to dominate online currency trading by forcing business onto their platforms.
FORTY PERCENT OF MARKET
In November 2000 the DOJ sent out CIDs to the banks that owned five different e-commerce platforms -- three for trading bonds and two for trading currencies. BrokerTec was not named as a firm being investigated at that point in time.
Market participants last year told Reuters the 14 Wall Street and European banks that own BrokerTec forced many of their bond traders to use the BrokerTec system or, in some cases, forfeit trading commissions.
The dealers who own the Jersey City, New Jersey-based company -- major banks that control 85 percent of the global interdealer Treasury market -- include firms like Goldman Sachs & Co. and Deutsche Bank.
BrokerTec and other online bond trading companies owe their success overall to executing transactions more quickly and cheaply than traditional telephone-based brokers.
In just four months in the middle of 2001, the firm nearly doubled its share of the interdealer market to almost 40 percent at the expense of its seven competitors.
Interdealer brokers including BrokerTec, ICAP Plc's Garban-Intercapital unit and Cantor Fitzgerald's eSpeed Inc. , serve as middlemen in trades between the likes of Merrill Lynch & Co. and Morgan Stanley, acting as fixed-income security wholesalers to large banks' brokerage units. Those units, in their capacity as bond dealers, then sell the bonds to mutual funds, insurance companies and other institutional investors -- or buy them back.
The other banks in the BrokerTec consortium are UBS Warburg , Credit Suisse First Boston, Dresdner Bank, J.P. Morgan Chase & CO., Morgan Stanley, Lehman Brothers, Merrill Lynch & Co. , Citigroup's Salomon Smith Barney unit, Barclays Capital, Banco Santander, ABN Amro and Greenwich Capital Markets.
Copyright 2002, Reuters News Service |
