Morgan Stanley fined $22 million over alleged bond-market 'pump and dump' scheme

The Autorit des Marchs Financiers alleged on Tuesday that the bank influenced the bonds in June 2015 after a bet on French debt threatened to hit a $20 million loss limit.
The bank bought futures on French bonds to prop up the value of its Belgian bond holdings and subsequently sold the latter assets, the French agency said.
Morgan Stanley plans to appeal the fine, saying its London bond desk followed bank protocol and "acted in the best interests of the market and its clients."
Watch Morgan Stanley trade live here .
Visit Business Insider's homepage for more stories .

Morgan Stanley was fined 20 million ($22 million) by French regulatory authorities over allegations that its London bond desk used "pump and dump" trades to manipulate bond prices.

The Autorit des Marchs Financiers alleged on Tuesday that the bank manipulated prices of French and Belgian bonds in June 2015 after a bet on French debt threatened to hit a $20 million loss limit.

The AMF said that Morgan Stanley's London desk was long on French bonds and short on German debt, but that when both positions soured, the bank lost $6 million on June 15, 2015, Bloomberg reported . The desk lost another $8.7 million the following day, prompting the traders to buy futures on French bonds to hedge the drop, the authority said.

The AMF considers French and Belgian bonds interchangeable, according to Bloomberg. The futures were used to boost the value of French bonds and, in turn, Belgian bonds before the desk dumped the latter assets, investigators said.

The bank fired back at the regulatory agency, saying it intends to file an appeal and defend its "integrity and high standards of professional behavior." The London bond desk followed bank protocol and simply looked to minimize losses from its initial bet, Morgan Stanley added.

"The activities in question were undertaken in accordance with market practice and as part of the Firm's role and obligations as a market maker and Morgan Stanley remains confident that it has acted in the best interests of the market and its clients," the bank said in a statement. "We therefore look forward to presenting our case to the appeal court."

The fine sets a dangerous precedent for banks looking to hedge bets, a Morgan Stanley lawyer, Stphane Bnouville, said at a November hearing, according to Bloomberg. He added that the allegations against the bond desk could be easily rebuffed.

Morgan Stanley shares fell as much as 0.6% early Tuesday.

Now read more markets coverage from Markets Insider and Business Insider:

Saudi Arabia's government invested more than $2 billion in Aramco's record-shattering IPO even though the nation swore to become more economically diverse

Virgin Galactic leaps after Morgan Stanley says the company's stock can jump 203% over the next year

Anthem doesn't want to own your doctor, and the CEO shared why it's pursuing a strategy that's the exact opposite of its biggest rival

NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption

Morgan Stanley fined $22 million over alleged bond-market 'pump and dump' scheme

FOLLOW BUSINESS INSIDER AFRICA

Recommended articles

A look into the diverse tax reforms being implemented across Africa

Dubai firm to lend South Sudan $12.9 billion in exchange for 20 years oil repayment

China dethrones USA as the most influential global power in Africa: Report

Major African economies expecting inflation ease into next year, except Nigeria

10 African countries with the lowest price changes in household commodities

Dangote refinery outranks Europe's 10 largest refining facilities

Africa may just have the lowest level of cyber threats compared to other regions

A look into Kenya’s Shs1.1 billion climate funding from the UK

FCMB: A corporate journey of resilience, evolution, and growth