US Treasury Market Under Scrutiny as Regulator Probes Potential Manipulation

Regulators are intensifying their oversight of the US Treasury market, with the New York State Department of Financial Services (DFS) sending letters to major banks, including Barclays, Deutsche Bank, Goldman Sachs, and others, seeking information on potential manipulation. This move comes as the sector faces growing scrutiny, with the US Department of Justice also examining the potential rigging of Treasury auctions. The investigation is part of a broader trend of regulatory focus on potential manipulation of markets that involve benchmark rates, following the Libor scandal that led to billions in fines. The US Treasury market, a benchmark for borrowing costs and asset prices worldwide, has been under increased scrutiny since market swings in October 2022, prompting calls for a review of automated trading rules.

Key Takeaways:

• The New York State Department of Financial Services (DFS) is probing potential manipulation of the US Treasury market, sending letters to five major banks, including Barclays, Deutsche Bank, Goldman Sachs, and Societe Generale.
• The investigation is in its early stages, with no focus on a specific bank, and all banks declined to comment.
• Twenty-two financial institutions, including banks that have New York state licenses, are under DFS jurisdiction and faced a lawsuit in July from a pension fund for Boston public employees accusing them of manipulating Treasury auctions.
• The US Department of Justice is also examining potential rigging of Treasury auctions, following the DFS's netting of over $5.6 billion in penalties from six banks that settled allegations of manipulating currency markets.
• The DFS has also been investigating potential manipulation of the Isdafix benchmark for US interest rate swaps, with several major banks involved.
• In May, Barclays became the first bank to be fined by the Commodity Futures Trading Commission over Isdafix manipulation allegations, paying a $115m penalty.

Statistics:

• $12 trillion: The scale of the US banking industry.
• $5.6 billion: The amount of penalties netted by the DFS from six banks that settled allegations of manipulating currency markets.
• $115 million: The penalty paid by Barclays for Isdafix manipulation allegations.
• 22: The number of financial institutions designated primary dealers and facing a lawsuit from a pension fund for Boston public employees.
• 5: The number of major banks sent letters by the DFS seeking information on potential Treasury market manipulation.
• October 2022: The month when market swings shook the US Treasury market, prompting calls for a review of automated trading rules.

Sources:

• People familiar with the case, reported by Gina Chon in Washington and Martin Arnold in London for [New York publication not specified].
• [No additional sources provided]