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Hungary watchdog fines HSBC for Oct gov’t bond deal

  Hungary’s financial watchdog PSzÁF said on Wednesday it has fined HSBC HUF 80 million ($350,400) for deals in October 2008 that influenced government bond market prices in a way that broke Hungarian law.

HSBC told Reuters it had commenced proceedings in Hungarian courts seeking a review of PSzÁF’s decision.

Hungary’s forint and government bonds plunged in October when the global crisis boosted risk aversion, and only an IMF-led financial rescue package and a 300 basis point central bank rate hike helped stabilize the situation.

PSzÁF said HSBC registered sell offers in large volumes for the 2023/A bond, with low prices and high yields, on Oct. 10 in the trading system of a non-regulated (OTC) market to meet bid prices quoted by other market participants.

“HSBC Bank plc delivered the securities after the settlement deadline, and it was not in possession of the sold quantities at the time of the transaction,” the watchdog said in a statement. “As an explanation for the transaction it cited its intention to reduce its risks inherent in its then existing positions in Government Bond 2020/A.” it said.

A change in the price of the 2023/A bonds can also influence the market price for the 2020/A bonds. The selling influenced other investment services providers.

“In its procedure PSZÁF detected a linkage between HSBC Bank plc’s transactions and the rise in quotation yields (in the market),” PSzÁF said. The 2023/A is also included in the assets of a significant number of open-ended investment funds and the price fall had an impact on the daily portfolio valuations of these funds, the watchdog said.

Even though HSBC is registered and operates abroad, PSzÁF has a jurisdiction because “the effects of the indicated transactions subject to and underlying the procedure have asserted themselves in the territory of the Republic of Hungary, on Hungarian market,” PSzÁF said. (Reuters)