Antitrust Probe Of Bond Firms By U.S. Agency Is Intensifying
The Justice Department's long-simmering investigation into possible antitrust violations by U.S. government bond dealers and brokers appears to be heating up.</br></br>Justice Department officials recently sent brief letters to numerous firms warning that its Antitrust Division is looking into "possible restraints of trade." The department is expected to follow up soon with formal notices, known as "civil investigative demands," for documents from major dealers and brokers as well as from the Public Securities Association, a trade group.</br></br>Government officials won't disclose details of the inquiry. But sources familiar with the investigation say one of the major items under study is the Wall Street tradition of limiting access to pricing information supplied by brokers on electronic screens.</br></br>A large share of government bond trading takes place through several brokerage firms that provide electronic trading screens showing prices at which major dealers will trade bonds with each other. This is often called the "inside" market. Most brokers supply their screens only to the 35 commercial banks and securities dealers recognized by the Federal Reserve Bank of New York as "primary dealers," as well as another 16 or so firms that are seeking to join the club.</br></br>Major bond dealers frequently turn to brokers, rather than trading directly with other dealers, because that allows them to trade anonymously. As neither the buyer nor seller knows who is on the other side of the trade, dealers are able to disguise their trading strategies. Among the biggest brokers are Fundamental Brokers Inc., RMJ Securities Corp., Garban Ltd., Chapdelaine & Co. and Cantor, Fitzgerald & Co.