Photographer: Susana Gonzalez/Bloomberg

Mexico Regulators Face Off Over Competing Probes Into Bond-Market Collusion

  • Conflicting instructions to banks could delay the outcome
  • Dispute highlights rising tensions between two agencies

Mexico’s financial regulator is advising banks to limit the information they provide to antitrust authorities as the two agencies undertake separate investigations into possible bond-market manipulation, according to three people with knowledge of the matter.

The conflicting instructions could obstruct or delay the probe, which focuses on whether so-called market makers and other players who buy government notes at auctions colluded to suppress prices. Any wrongdoing may have cost the government millions in higher borrowing costs.

The dispute highlights rising tensions between two agencies locked in a turf war over a high-profile investigation that threatens to upend Mexico’s $400 billion market for local sovereign bonds. People close to both organizations have dismissed the ability of the other regulator to effectively conduct the probe.

Press officials at the antitrust agency, known as Cofece, declined to comment on any dispute surrounding the investigations. The banking regulator, known as the CNBV, didn’t reply to a request for comment.

Cofece began its investigation in October, marking the first time the entity had ventured into examining financial transactions, and in April made its probe public in an effort to elicit tips. Three months after that, the CNBV said it would also look into the matter.

Secrecy Laws

One area of disagreement is the reach of banking secrecy laws that protect the identity of clients, which the CNBV is arguing limits the information organizations can provide to the antitrust regulator, according to two people familiar with the argument who asked not to be identified because they’re not authorized to speak on the matter. Cofece’s position, the people said, is that the Federal Economic Competition Law compels entities including financial organizations to provide all needed information to determine if collusion occurred.

Luis Santos, an antitrust lawyer who’s representing one of the parties probed in the investigations, said the CNBV’s scrutiny of the banks is hindering Cofece’s work. Santos said he was commenting as an antitrust expert and not on behalf of a client.

Bloomberg News reported in May that 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. are the focus of Cofece’s probe. None of the banks has been accused of wrongdoing.

The mixed signals from regulators aren’t the only factors threatening to delay the probe. Both agencies have lost key personnel in recent months.

This year, two of the nine vice presidents at the CNBV have left to take positions in the private sector. Jorge Palacios departed in February after four years working with the commission to take a job at the Mexico unit of Santander. Eduardo Flores, the former vice president of market supervision, left at the end of June to join the law firm Creel, Garcia-Cuellar, Aiza & Enriquez as a member of the financial services practice. The firm represents at least one of the banks in the investigation, a person with knowledge of the matter said.

The lawyer leading Cofece’s bond market manipulation probe until mid-June also joined Creel, as the law firm is known, as a member of its competition practice last month.

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