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The Justice Department is investigating possible antitrust violations by a number of major U.S. investment banks involved in online bond-trading systems. According to several people working for the banks under investigation, Merrill Lynch, Morgan Stanley, Goldman Sachs, Citibank and others all have received detailed questionnaires from the Justice Department inquiring about the workings of their online bond consortia. The trading systems include Bond Book and Market Axxess. Foreign exchange trading platforms such as FXall and Atriax are also involved in the investigation. The letters are known as “Civil Investigative Demands” and are the opening salvo of a DOJ investigation. “All the banks got one,” confirmed one bank spokesman, who did not want to be identified. Just because the DOJ is investigating does not mean it will take action later. According to Joe Sims, antitrust partner at Jones, Day, Reavis & Pogue in Washington, D.C., only 40 percent of DOJ investigations result in an “enforcement action.” Goldman Sachs would not comment on the investigation. A spokesman for Merrill Lynch said, “We can confirm we have received the inquiry and we are fully cooperating.” Morgan Stanley said, “We can confirm we have received a letter and we are cooperating fully with the Department of Justice.” The DOJ had no immediate comment on its investigation. Antitrust experts say the DOJ is worried that close communication between buyers and buyers, and sellers and sellers could increase the possibilities of price-fixing. “If you increase transparency between buyers and buyers or sellers and sellers you reduce the fear factor, which is what induces competition — the fear you will be beaten out by the other guy,” says Sims. The bond market is one of the least transparent markets around. It does not have one central location where prices are posted, and most deals are done over the phone. There are an estimated 3 million types of bonds, compared with only 10,000 equities, available for trade in the U.S. When buying bonds, many big institutions prefer to deal with brokers who they know in the hope of getting better prices. Trading on the Web would, in theory, make this pricing more transparent, but antitrust experts say that is exactly what the DOJ is worried about. It believes that this transparency could lead to price fixing. In the past, the DOJ has shown particular interest in airline pricing sites because they make it easier to see what the competition is charging. Related Articles from The Industry Standard: Antitrust Guidelines Set for B-to-B Exchanges Meet the New Antitrust Boss, Same as the Old Antitrust Boss Fed Antitrust Officials Probing eBay Copyright � 2000 The Industry Standard

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