FROM NEW YORK TIMES
Europe Accuses 13 Banks of Blocking Entrants to Default Swaps Market
BY MARK SCOTT
Olivier Hoslet/European Pressphoto AgencyJoaquín Almunia, the European Union’s competition commissioner, said it was “unacceptable” to block the derivatives market.
LONDON – European antitrust regulators on Monday accused some of the world’s largest banks of collusion to block competition from the credit derivatives market.
The European Commission said it had issued the complaint against the firms, including Citigroup and JPMorgan Chase, after finding evidence that they had tried to prevent exchanges from entering the credit derivatives business between 2006 and 2009.
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The European Commission, which oversees antitrust regulation, said a two-year investigation found evidence that the global banks had worked with the International Swaps and Derivatives Association, a trade body, and the data firm Markit to block new entrants in part of the derivatives market.
In particular, the firms’ actions stopped both Deutsche Börse and the CME from gaining financial information needed to enter the market for credit-default swaps.
These financial instruments are like a form of insurance that allows investors to be paid in full if the underlying bond defaults. Currently, they can be traded bilaterally between firms through the so-called over-the-counter market, though new regulation is requiring derivatives to be handled through clearinghouses, financial intermediaries that guarantee trades if one side defaults.
“It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives,” the European Union’s competition commissioner, Joaquín Almunia, said in a statement.
The 13 banks involved in the case are Bank of America Merrill Lynch, Barclays,Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Royal Bank of Scotland and UBS, as well as the International Swaps and Derivatives Association and Markit.
In a statement, the International Swaps and Derivatives Association said it was confident that it had acted properly, and had not broken European antitrust rules.
The European Commission’s antitrust powers include levying fines of as much as 10 percent of a firm’s global annual sales, though fines are typically much lower.
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