1
00:00:00,000 --> 00:00:02,080
Speaker 1: All right, well, now it's time for our daily Bloomberg

2
00:00:02,160 --> 00:00:04,440
Speaker 1: Lab Brief, exploring legal issues in the news, and the

3
00:00:04,480 --> 00:00:07,680
Speaker 1: Lab Brief is brought to you by American Arbitration Association,

4
00:00:07,960 --> 00:00:11,720
Speaker 1: International Trader Business Dispute Resolve Faster with the International Center

5
00:00:11,760 --> 00:00:15,160
Speaker 1: for a Dispute Resolution, the leader in alternative dispute resolution

6
00:00:15,200 --> 00:00:17,880
Speaker 1: around the world i c d R dot org. Today

7
00:00:17,880 --> 00:00:21,680
Speaker 1: Bloomberg Lahos doing Grosso and Gregg's Store discussed federal prosecutors

8
00:00:21,680 --> 00:00:25,080
Speaker 1: issuing subpoenas to several big banks as part of criminal

9
00:00:25,120 --> 00:00:28,800
Speaker 1: investigations into alleged manipulation of the U. S. Treasuries market.

10
00:00:29,080 --> 00:00:32,600
Speaker 1: They speak with Robert Hawkett, a law professor at Cornell University,

11
00:00:32,840 --> 00:00:37,239
Speaker 1: and Bloomberg Justice Department reporter Tom Schoenberg. Tom tell us

12
00:00:37,320 --> 00:00:41,559
Speaker 1: what we know about what federal investigators are looking at

13
00:00:41,880 --> 00:00:44,000
Speaker 1: first came out a couple of years ago that they

14
00:00:44,040 --> 00:00:46,879
Speaker 1: were starting to look into this market, and that king

15
00:00:46,920 --> 00:00:49,800
Speaker 1: kind of shortly after the Justice Department had settled with

16
00:00:49,840 --> 00:00:53,920
Speaker 1: a number of banks in a collusion case regarding the

17
00:00:54,000 --> 00:00:57,440
Speaker 1: currency markets, where they were also looking at trading desks there.

18
00:00:57,480 --> 00:01:01,760
Speaker 1: The subpoenas now kind of show that this investigation UH

19
00:01:02,160 --> 00:01:05,560
Speaker 1: is beginning to ramp up with the Department likely sort

20
00:01:05,600 --> 00:01:08,280
Speaker 1: of settling on a specific sort of legal theory that

21
00:01:08,400 --> 00:01:11,679
Speaker 1: they want to want to dig further into. Bob, Now,

22
00:01:11,880 --> 00:01:14,240
Speaker 1: correct me if I'm wrong on this, but it seems

23
00:01:14,240 --> 00:01:17,240
Speaker 1: that in order to decide that there was trader to

24
00:01:17,280 --> 00:01:20,600
Speaker 1: trader communication at least in one of the lawsuits filed,

25
00:01:20,920 --> 00:01:26,959
Speaker 1: they looked back at auction data between and then decided

26
00:01:27,040 --> 00:01:30,480
Speaker 1: the chance of what was happening was lower than one percent.

27
00:01:30,640 --> 00:01:34,120
Speaker 1: Explain what they did. Yeah, So, so this is the

28
00:01:34,120 --> 00:01:36,920
Speaker 1: the idea that the dealer bank that enters into these

29
00:01:36,959 --> 00:01:39,440
Speaker 1: particular contracts with people who would like to buy the

30
00:01:39,520 --> 00:01:42,360
Speaker 1: treasuries once they're actually issued, of course charge a price

31
00:01:42,400 --> 00:01:44,560
Speaker 1: for them. Right, there's a cost and bole and in

32
00:01:44,600 --> 00:01:47,320
Speaker 1: a sense you've got in effect them that the pricing

33
00:01:47,440 --> 00:01:50,960
Speaker 1: that occurs in the wind issued market. It's not intended

34
00:01:50,960 --> 00:01:53,160
Speaker 1: this way, but it functions as a kind of bets

35
00:01:53,560 --> 00:01:56,600
Speaker 1: in a way on what the actual treasury security prices

36
00:01:56,640 --> 00:02:00,280
Speaker 1: will be once they're actually issued. Now, order they're what

37
00:02:00,320 --> 00:02:03,120
Speaker 1: that means that if it's a truly efficient market and

38
00:02:03,240 --> 00:02:06,280
Speaker 1: there's no sort of pollusion going on, in about half

39
00:02:06,400 --> 00:02:08,960
Speaker 1: the time, the dealer bank that is selling the win

40
00:02:09,040 --> 00:02:13,480
Speaker 1: issued rights ought to end up sort of losing on

41
00:02:13,960 --> 00:02:17,200
Speaker 1: the difference between the price of the win issued security

42
00:02:17,200 --> 00:02:20,119
Speaker 1: on the one hand and then the actual treasury security

43
00:02:20,160 --> 00:02:22,720
Speaker 1: on the other hand. And then about half the time

44
00:02:22,720 --> 00:02:25,800
Speaker 1: the dealer banks should win on that particular spread, In

45
00:02:25,840 --> 00:02:29,280
Speaker 1: other words, about half the time the win issued securities

46
00:02:29,320 --> 00:02:31,880
Speaker 1: should sell to those who want to buy the treasuries

47
00:02:31,919 --> 00:02:35,960
Speaker 1: themselves at a lower price than the treasuries themselves ultimately

48
00:02:36,040 --> 00:02:38,480
Speaker 1: end up selling for, and about half the time they

49
00:02:38,480 --> 00:02:41,120
Speaker 1: should sell at a higher price. Now, what this tension

50
00:02:41,160 --> 00:02:44,239
Speaker 1: fund in Cleveland and others have alleged is that, in fact,

51
00:02:44,480 --> 00:02:48,320
Speaker 1: much more than half the time the treasuries actually sell

52
00:02:48,440 --> 00:02:51,959
Speaker 1: for less than the win issued futurist type contracts on them,

53
00:02:52,280 --> 00:02:55,640
Speaker 1: which basically means the dealer banks are basically are recouping

54
00:02:55,880 --> 00:02:59,040
Speaker 1: a significant profit much more often than they're making a

55
00:02:59,160 --> 00:03:01,359
Speaker 1: laws in that suggests at least a sort of prime

56
00:03:01,400 --> 00:03:04,160
Speaker 1: offacic case for some kind of pollusions being a pot

57
00:03:04,800 --> 00:03:08,520
Speaker 1: And that's Bloomberg Justice Department reporter Tom Schoenberg and Robert Hawkett,

58
00:03:08,520 --> 00:03:11,919
Speaker 1: a law professor at Cornell University, speaking with Bloomberg's doing

59
00:03:11,919 --> 00:03:14,400
Speaker 1: Grosso and Greg's store. You can listen to Bloomberg Law

60
00:03:14,440 --> 00:03:17,760
Speaker 1: weekdays at one pm Wall Street Time here on Bloomberg Radio,

61
00:03:17,840 --> 00:03:19,680
Speaker 1: and that's This morning is Bloomberg Law Brief. You can

62
00:03:19,720 --> 00:03:22,560
Speaker 1: find more legal news at Bloomberg Law dot com or

63
00:03:22,639 --> 00:03:25,279
Speaker 1: Bloomberg BNA dot com