Morgan Stanley was fined 20 million euros ($22.2 million) in France over accusations its London desk used “pump and dump” tactics to rig bond prices after a bet on the French sovereign turned sour amid Greece’s debt crisis.

The enforcement committee of the Autorite des Marches Financiers said the bank manipulated the prices of 14 French bonds and 8 Belgian bonds in June 2015. The lender also manipulated the price of futures on French debt, the AMF said in a statement on Tuesday.

“The seriousness of the infringements is also reinforced by the sophistication of the contentious transactions,” the French watchdog said. “The traders on the desk knew that on June 16, 2015 there was high volatility and low liquidity on the market, which would necessarily increase the impact of their operations.”

At a hearing last month, AMF investigators said the bank’s London desk was long on French bonds and short on German debt, betting the yield spread would narrow. But the opposite scenario played out as the fallout from Greece’s impasse with creditors spread, causing the desk to lose $6 million on June 15, 2015, and another $8.7 million when markets opened the next day.

To narrow its losses and avoid hitting a $20 million loss-limit set by Morgan Stanley’s management, the London desk allegedly acquired futures on French bonds on June 16, 2015, with the sole objective of increasing the market value of French and Belgian bonds before aggressively selling the latter. French and Belgian bonds are considered interchangeable, according to the AMF.

Morgan Stanley said it would appeal the penalty, which is the regulator’s joint-highest. Two years ago, Natixis Asset Management got a then-record 35 million-euro penalty from the AMF but the French bank’s unit won a 15 million-euro cut last month.

Market Maker
“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.

During the hearing, Stephane Benouville, a lawyer for the bank, said the accusations didn’t stand up to scrutiny. He added that fining Morgan Stanley would send a message that market makers aren’t allowed to hedge themselves and exit risky positions.

The contentious purchases of futures took place between 9:29 a.m. and 9:44 a.m. Immediately after, Morgan Stanley traders on the London desk instantaneously sold French bonds for a total of 815 million euros and Belgian bonds for 340 million euros.

During the 15 minutes when Morgan Stanley bought futures on French debt, the price of the underlying 14 bonds sold immediately afterwards increased by 0.17% to 1.13%, according to the AMF. The underlying Belgian bonds rose between 0.22% and 1.39%.

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