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Big Banks Face Lawsuit Over Smaller Corporate Bond Trades

 |  April 22, 2020

Ten of the world’s largest banks, including JPMorgan Chase and Bank of America, have been sued for allegedly conspiring over nearly 14 years to rig prices in the US$9.6 trillion US corporate bond market, costing ordinary investors billions of dollars, reported Bloomberg. 

The proposed class action filed on Tuesday, April 21, in federal court in Manhattan claimed the banks have since August 2006 violated antitrust law by overcharging investors on “odd-lot” trades, which are worth less than US$1 million and comprise 90% of all corporate bond trading. 

Other defendants include Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, Royal Bank of Scotland, and Wells Fargo, or their respective affiliates. 

According to the 81-page complaint, the banks leveraged their power from handling more than two-thirds of US corporate bond underwriting to quietly inflate spreads between the prices where they would buy and sell odd-lot bonds. 

This allegedly resulted in spreads 25% to 300% higher than on “round-lot” trades over US$1 million, which are normally conducted by institutional investors, enabling the banks to reap higher compensation while boosting retail investors’ trading costs. 

“No reasonable economic justification explains the magnitude of the pricing disparity,” the complaint stated. It added that odd-lot spreads are narrower even in foreign bond markets with lower volumes and liquidity.

Full Content: Bloomberg

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