Cross-posted from Kate Mackenzie at FTAlphaville.
The European Commission has been investigating goings-on in the CDS world since Deutsche Borse and CME tried to enter between 2006 and 2009. The commission today said it’s reached a preliminary conclusion that — deep breath — ISDA, Markit, Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland, and UBS all infringed EU antitrust rules. Deutsche and CME tried to get in and were denied exchange trading licences by ISDA, Markit, and the banks, says the commission.
From the statement (our emphasis):
Brussels, 1 July 2013
Antitrust: Commission sends statement of objections to 13 investment banks, ISDA and Markit in credit default swaps investigation
The European Commission has informed some of the world’s largest investment banks of its preliminary conclusion that they infringed EU antitrust rules that prohibit anti-competitive agreements by colluding to prevent exchanges from entering the credit derivatives business between 2006 and 2009. The sending of a statement of objections does not prejudge the final outcome of the investigation.
Commission Vice President in charge of competition policy Joaquín Almunia said: “It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives. Over-the-counter trading is not only more expensive for investors than exchange trading, it is also prone to systemic risks.”
The statement of objections is addressed to Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland, UBS as well as the International Swaps and Derivatives Association (ISDA) and data service provider Markit.
Between 2006 and 2009, Deutsche Börse and the Chicago Mercantile Exchange tried to enter the credit derivatives business. The exchanges turned to ISDA and Markit to obtain necessary licenses for data and index benchmarks, but, according to the preliminary findings of the Commission, the banks controlling these bodies instructed them to license only for “over-the-counter” (OTC) trading purposes and not for exchange trading. Several of the investment banks also sought to shut out exchanges in other ways, for example by coordinating the choice of their preferred clearing house.
The Commission takes the preliminary view that the banks acted collectively to shut out exchanges from the market because they feared that exchange trading would have reduced their revenues from acting as intermediaries in the OTC market.
As for what happens next:
A statement of objections is a formal step in Commission investigations into suspected violations of EU antitrust rules. The Commission informs the parties concerned in writing of the objections raised against them and the companies can examine the documents in the Commission’s investigation file, reply in writing and request an oral hearing to present their comments on the case in front of representatives of the Commission and national competition authorities.
If, after the parties have exercised their rights of defence, the Commission concludes that there is sufficient evidence of an infringement, it can issue a decision prohibiting the conduct and impose a fine of up to 10% of a company’s annual worldwide turnover.
Here’s more information about the case from the European Commission’s site.
