The Bank of Canada warned 19 of the countries largest bond dealers not to take advantage of Canadian debt by manipulating the bond market. The bank suspected a hedge fund might have bought up a large share of the issue and used that stake to manipulate prices in its favour.
The bank issued a public statement and is making no secret of the fact that it doesn’t like to see irregular trading activity on the secondary bond market. Dealers and hedge funds could face fines of $5 million or more, or up to three times the amount of money illicitly gained. Dealers can also be kicked out of the organization, losing their rights to buy and sell bonds.
At stake is Canada’s reputation as a stable place to invest. The fact that the central bank is calling this gathering points to just how easy it has become for even small financial players and hedge funds to influence the fixed income market.
The meeting stems from an investigation of suspicious bond trading activity in the last three weeks of May, when the price spiked on benchmark government of Canada 10-year debt and derivates priced off that bond.
There are $10-billion of these bonds outstanding, but the IDA’s initial investigation turned up “insufficient grounds” for further digging.
The federal government has billions of dollars at stake in the bond market, and a smoothly functioning bond trade is crucial for the country’s economic health.
No comments:
Post a Comment