
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, June 22, 1993                   TAG: 9306220052
SECTION: BUSINESS                    PAGE: B8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: NEW YORK                                LENGTH: Medium

BIG BOND DEALERS PROBED INVESTIGATION TRIES TO FIND COLLUSION

The Justice Department has started an investigation of the government securities market, hunting for evidence of possible collusion among large bond dealers, officials said Monday.

It's the latest in a series of government inquiries into trading practices in the multitrillion dollar market for government bonds, notes and bills, and stems directly from the Treasury auction cheating scandal that ensnared Salomon Inc. in 1991.

The government has issued subpoenas to several large firms, including Goldman Sachs & Co., PaineWebber Group and J.P. Morgan & Co., as well as to the Public Securities Association, a trade group. It was unclear whether Salomon was subpoenaed. Salomon officials declined comment.

At issue is a change in the recommended price increments for trades in government notes.

Justice Department spokeswoman Gina Talamona declined to discuss the subpoenas, except to say the department's antitrust division has "an ongoing investigation into the government securities market."

Several Treasury market analysts said due to limited public information about the Justice Department investigation, it was difficult to analyze what effect the higher pricing increments had on competition and the price of government securities.

The market for government securities, which currently exceeds $2 trillion a year, is essential to the smooth functioning of the economy. The Treasury finances the public debt through sales of government bonds and notes. Interest rates of the securities form the bedrock for other interest rates including mortgages and credit cards.

The investigation centers on a 1991 rule approved by the Public Securities Association concerning incremental price changes in Treasury notes when so-called primary dealers sought to increase, or top, their bids. The increment was increased to 1/64th from 1/128th of the note's face value.

Primary dealers are the 39 securities firms selected by the government to participate directly in Treasury bond auctions and then resell the securities to customers in what is known as the secondary market. The pricing at question involves trades among the 39 primary dealer firms.

by CNB