Treasury irked that somebody else may be rigging markets


From Reuters
Wednesday, September 27, 2006

WASHINGTON -- U.S. financial regulators are concerned by an increase in instances of firms trying to profit from controlling a particular Treasury security, a Treasury official told a bond market group on Wednesday.

"We have observed instances in which firms appeared to gain a significant degree of control over highly sought after Treasury issues and seemed to use that market power to their advantage," Deputy Assistant Treasury Secretary James Clouse said in remarks prepared for delivery to the Bond Market Association in New York.

"In the process, prices in the cash, repo and futures markets appear to have been distorted to varying degrees," he said.

Clouse's remarks are the latest in warnings issued by Treasury officials this year that traders' efforts to manipulate markets may push up costs and drive away investors in Treasury security markets.

Clouse said the Treasury, the Federal Reserve, the Securities and Exchange Commission, the New York Federal Reserve Bank, and the Commodity Futures Trading Commission are conducting regular market surveillance of Treasury cash, repurchase, and futures markets.

"If the situation warrants, cases may be forwarded to the appropriate agency for enforcement action or criminal investigation," Clouse warned.

Clouse said regulators would keep a close watch on firms with large positions in specific issues. Regulators will also be alert for abnormally high profits on a security issue of which a firm holds a significant position, he said.

"There are generally no free lunches in a highly competitive and efficient financial market," Clouse said.

* * *

at the
New Orleans Investment Conference
Wednesday-Sunday, November 15-19, 2006

When you register for this conference online, PLEASE help GATA by designating us as the organization through which you heard about the conference. There's a window at the bottom of the Internet registration form for designating us as your recommender, and the conference will pay GATA a commission for each GATA supporter who attends.

* * *

Help Keep GATA Going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at GATA is grateful for financial contributions, which are federally tax-deductible in the United States.