Posted: July 30, 2018

Mexican Government Bond Market Manipulation

In our May 17, 2018, post, we alerted you to several lawsuits filed in the Southern District of New York alleging manipulation of the market for Mexican government bonds, and noted that one case had already moved to consolidate with other actions. Since then, on June 18, 2018, the Court granted motions by plaintiffs in all six of the following cases to consolidate and be granted leave to file a consolidated amended complaint: Oklahoma Firefighters Pension and Retirement System et al. v. Banco Santander S.A. et al., 18-cv-02830 (S.D.N.Y.); Manhattan and Bronx Surface Transit Operating Authority et al. v. Banco Santander S.A. et al., 18-cv-03985 (S.D.N.Y.); Boston Retirement System v. Banco Santander S.A., et. al., 18-cv-04294 (S.D.N.Y.); Southeastern Pennsylvania Transportation Authority v. Banco Santander S.A. et al., 18-cv-0440 (S.D.N.Y.), United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Banco Bilbao Vizcaya Argentaria S.A. et al., 18-cv-04402 (S.D.N.Y.), and Government Employees’ Retirement System of the Virgin Islands v. Banco Santander S.A. et al., 18-cv-4673 (S.D.N.Y.).

The Plaintiffs in those consolidated actions, now known as In re Mexican Government Bonds Antitrust Litigation, 18-cv-02830 (In re MGB), filed their Consolidated Amended Class Action Complaint (the “Complaint”), available here, on July 18, 2018. In this post, we provide an overview of the alleged facts in this newly filed complaint.

How the Mexican Government Bond Market Works

A Mexican Government Bond (“MGB”) is a debt security issued by the Mexican government (the “Government”) at regularly scheduled weekly auctions. There are four types of MGBs, each of which differ from each other in how interest is paid to the holder: Federal Treasury Certificates or “CETES” (short term bonds which do not pay interest to the holder until the bonds mature); Mexican Federal Government Development Bonds or “BONOS” (fixed-rate bonds with semi-annual coupon payments that have a maturity greater than one year); UDIBONOS (inflation-hedged coupon bonds that pays interest at a fixed rate); and Bondes D (issued with any maturity with a multiple of 28 days and pays a coupon every month).

The Plaintiffs present the MGB market as a three-tiered pyramid: the Government, as issuer, sits at the top, the Defendant “market maker” banks in the middle, and the consumers at the bottom. Not just anyone can bid in the Government’s weekly auctions. That privilege is reserved for participants in the Bank of Mexico’s “Market Maker Program,” who are also the Defendant Banks in these actions. In order to become market makers, the Defendants have to commit to bidding on the lower of (a) 20% of the amount of MGBs at each weekly auction or (b) 1 divided by the number of market makers for a particular type of MGB. The Defendants are also required to present “two-way quotes” to consumers on the secondary market: a quote to sell MGBs and a quote to buy them from consumers. Trades with consumers usually happened “over-the-counter.” It is from the difference between the price paid for the MGBs by the market makers at the Government’s auction and the price the MGBs are sold to consumers that the market makers make their profit.

Most importantly, market makers are not allowed to disclose their bids to each other prior to auction, and must offer competitive rates, and refrain from colluding.

The Alleged Collusion

Plaintiffs allege that the defendants conspired to rig MGB prices in at least three ways: (1) Defendants shared information with each other and coordinated bids submitted at the Government’s weekly auction, so as to fix the prices paid for bonds and the amount of bonds allocated to each bank; (2) Defendants then agreed to sell the bonds at fixed, artificially high prices to consumers on the secondary market; and (3) after the MGBs were initially offered on the secondary market, Defendants agreed to artificially widen the “bid-ask spread,” the difference between the bid price that a Defendant would agree to buy a particular type of MGB from a consumer and what a Defendants would agree to sell that same type of MGB for, as listed in the “two-way quote.”

In support of these allegations, Plaintiffs note an April 2017 announcement by Mexican regulator Comisión Federal de Competencia Económica (“COFECE”) that it had uncovered evidence of price-fixing and collusion in the MGB market. Plaintiffs cite public reports for the proposition that the conduct being investigated by COFECE involves both the Government’s auctions and the consumer market, and goes back to October 2006. Not only have the Defendants since acknowledged that they are targets of the COFECE investigation, but Plaintiffs plead that public reports have indicated that an unidentified Defendant has applied for and has been granted leniency under the Government’s cartel leniency program. This is significant because the terms of the program require that the applicant show to the Government that it has participated in a cartel, not just that it engaged in unilateral illegal conduct.

Besides the COFECE’s investigation and related public reports, Plaintiffs plead that various economic evidence shows support for collusion. Most of this economic evidence relates to comparison of bid activity between before the COFECE’s investigation was announced (“Pre-Announcement Period”) and after the COFECE investigation was announced. For example, the “bid dispersion” or difference between the highest and lowest bids at the Government’s MGB auctions for all BONOS increased 12.24% after the COFECE’s investigation was announced. Since a higher bid dispersion is consistent with more uncertainty in the market, it supports the inference that there was collusion prior to the investigation being announced. Plaintiffs assert that an adjustment of that comparison based on the U.S. Treasury Note Volatility Index found an even greater bid dispersion; Plaintiffs contend that this shows that the bid dispersion was not caused by macroeconomic factors.

Plaintiffs state that they found that the percentage of bonds received by each Defendant at the Government’s MGB auctions relative to what was bid for (known as the “fill rate”) was greater during the Pre-Announcement Period than the Post-Announcement Period. Plaintiffs allege that this difference between the Pre and Post-Announcement periods reflects the coordination of bids amongst Defendants. A comparison by Plaintiffs between the fill rates of the Defendants with non-market makers such as Mexican state-run pension funds shows less statistical volatility (lack of certainty) among the Defendants, which also supports collusion.

To support the allegation that Defendants agreed to fix the bid-ask spread, Plaintiffs compared the bid-ask spread between the Pre-Announcement and Post-Announcement Period. Plaintiffs found that the bid-ask spreads in the Pre-Announcement periods were 29% to 50% wider than in the Post-Announcement Period. According to Plaintiffs, this reflects collusion to quote wider spreads in order to make higher profits.

Besides these and other economic evidence not covered in this post, the Complaint also detailed how there was a “revolving door” of traders between the Defendants; many MGB traders previously worked together in the same bank, before moving on to work for another market maker. Plaintiff plead that these prior connections allow for closer relationships and more open lines of communication, which supports the inference of a conspiracy.

Finally, Plaintiffs detail admissions from the Defendants and findings from various regulatory authorities showing that the same Defendant banks have colluded to fix prices in other markets, such as the U.S. Dollar Libor benchmark rate. This evinces, Plaintiffs argue, a “practice [by defendants] of conspiring to increase profits by fixing prices for their benefit and at the expense of consumers.”

The Parties and Alleged Class

Defendants Santander Mexico, BBVA-Bancomer, JPMorgan Mexico, HSBC Mexico, Barclays Mexico, Citibanamex, Bank of America Mexico, Deutsche Bank Mexico, Banco Credit Suisse (Mexico), S.A., and ING Bank Mexico S.A. are alleged to be the market makers during proposed Class Period. Their relevant parent entities and certain other affiliates, including Banco Santander, S.A., BBVA S.A., JPMorgan Chase & Co., HSBC Holdings PLC, Barclays PLC, Citigroup Inc., Bank of America Corporation, Deutsche Bank Defendants, Credit Suisse Group AG, and ING Bank, N.V. are also defendants.

Plaintiffs Oklahoma Firefighters Pension and Retirement System (“OFPRS”), Electrical Workers Pension Fund Local 103, I.B.E.W (“EWPFL”), Manhattan and Bronx Surface Transit Operating Authority (“MaBSTOA”), MTA Defined Benefit Pension Plan Master Trust (“MTADBPPMT”), Boston Retirement System (“BRS”), Southeastern Pennsylvania Transportation Authority (“SEPTA”), Government Employees’ Retirement System of the Virgin Islands (“GERS”), United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund (“UFCW Tri-State”) all invested in MGB and collectively traded MGBs with the Defendants, and allege to have suffered monetary losses from being “overcharged or underpaid in these transactions as a direct result of Defendants’ conspiracy to fix MGB prices in the United States.”

Class Allegations

The Complaint defines the proposed Class as follows:

All persons that entered into an MGB transaction between at least January 1, 2006, and April 19, 2017 (the “Class Period”), where such persons were either domiciled in the United States or its territories or, if domiciled outside the United States or its territories, transacted in the United States or its territories.

Excluded from the Class are Defendants and their employees, agents, affiliates, parents, subsidiaries and co-conspirators, whether or not named in this Complaint, and the United States government.


Plaintiffs seek damages (including treble damages), restitution, injunctions and declaratory relief under Section 1 of the Sherman Act, 15 U.S.C. § 1, Sections 4 and 16 of the Clayton Act under 15 U.S.C. §§ 15(a), and claims for unjust enrichment.

Motion to Dismiss Briefing

The Court and the parties have agreed that the date by which Defendants have to move against, answer or otherwise respond to the Complaint is September 17, 2018. Please stay tuned to this blog for further developments related to that briefing.

This post was written by John F. Whelan.

We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at or John F. Whelan at or call John Lundin or John Whelan at (212) 344-5400.

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