Photographer: Susana Gonzalez/Bloomberg

Mexico Probe Into Bond-Market Collusion Said to Be Expanding

  • Securities regulator begins its own manipulation investigation
  • Parallel probe brings possibility of higher penalties

Mexican authorities are widening a probe into the country’s $400 billion bond market.

The securities regulator known as the CNBV has started its own investigation into whether banks, brokers and pension funds colluded to suppress prices for government securities, according to three people with knowledge of the matter. The development comes months after antitrust regulators began looking into the local market, and both bodies have requested records of electronic chats and other communications, one person said.

The parallel investigations raise the stakes for participants in Mexico’s bond market, where primary dealers bid on notes via auction. The CNBV’s probe means that more investigators are looking into wrongdoing, and those identified as perpetrators could face higher penalties.

Cofece began its investigation in October and made it public six months later in an attempt to attract informants. Bloomberg News reported in May that seven banks -- the local units of Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, JPMorgan Chase & Co., HSBC Holdings Plc, Barclays Plc, Citigroup Inc. and Bank of America Corp were at the center of the probe. Some banks have already been contacted by Cofece about the case. None have been accused of wrongdoing.

Some experts are questioning the efficacy of these parallel probes. Luis Santos, an antitrust lawyer, who is representing one of the parties involved in the investigations, said the CNBV’s scrutiny of the banks is hindering the Cofece’s work.

"It’s not being carried out in a healthy manner," said Santos of Mexico City-based Santos & Partners, who said he was commenting as an antitrust expert and not in representation of a client. The CNBV "isn’t helping" the case, he said.

Mari Nieves Lanzagorta, a spokeswoman for the CNBV, said that the agency will “make public the information that corresponds with this particular case in due time” and declined to elaborate. The CNBV couldn’t immediately be reached for a comment in response to criticism of the parallel investigation. Cofece, as the competition agency is known, didn’t immediately return a request for comment.

Public Finances

Press officials at JPMorgan, Santander and Barclays declined to comment. Messages requesting comment from BBVA, HSBC, Citigroup and Bank of America weren’t immediately returned.

The competition agency has said that the damage to public finances from the alleged manipulation could be “serious.” By suppressing prices, buyers would be able to get higher yields on the bonds, making interest payments more expensive for the government.

The investigation follows long-running cases over interest-rate rigging in the U.K. and comes after U.S. prosecutors in January charged workers from some of the world’s biggest banks with conspiring to coordinate trading of dollars and euros to manipulate prices.

In Mexico, the two agencies could levy separate fines if they both discover wrongdoing. Cofece’s highest fine for monopolistic practices is 10 percent of a company’s annual income in the fiscal year prior to the finding of wrongdoing. Separately, the CNBV can fine an individual as much as 27 years’ worth of Mexico’s minimum wage (a total of about $41,400 over that time) for market manipulation when the benefit gained was less than $20,000. If they profited more than that, the CNBV can fine them more than double the value of the profit they reaped from the manipulation. Both bodies can also seek jail time.

The CNBV has had jurisdiction to investigate market manipulation since at least 2009. Cofece, which was both overhauled and gained autonomy from the government in 2014, can look into activities that date back as far as 10 years. Its largest fine was handed out in May 2016, when it found the four biggest pension funds and 11 individuals colluded to prevent workers from switching to competitors. The total fine was 1.1 billion pesos ($60 million).

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