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EC launches antitrust probe into CDS market

03 May 2011  |  10160 views  |  0 EU flag

The world's biggest investment banks are being investigated in two European Commission antitrust probes into the credit default swaps (CDS) market.

The first investigation centres on 16 banks that act as dealers in the CDS market and their practice of giving most of their pricing, indices and other essential daily data only to UK vendor Markit.

This "could be the consequence" of collusion or an abuse of a possible collective dominance and may shut out other providers, says the EC.

Such behaviour would be in violation of EU antitrust rules from the banks; JP Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Crédit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo Bank/Wachovia, Crédit Agricole and Société Générale.

The Commission is also looking into clauses in Markit's licence and distribution agreements which could be abusive and impede the development of competition for CDS information provision.

In a statement, the firm says: "Markit does not believe it has engaged in any inappropriate conduct and looks forward to demonstrating that to the Commission."

Meanwhile, a second case against nine of the banks and ICE Clear Europe will investigate whether the preferential tariffs granted by the clearer have the effect of locking them in the ICE system to the detriment of competitors.

The banks involved are Bank of America Corporation, Barclays, Citigroup, Crédit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Morgan Stanley and UBS.

Joaquín Almunia, Commission VP in charge of competition policy, says: "Lack of transparency in markets can lead to abusive behaviour and facilitate violations of competition rules and the Commission should react accordingly. I hope our investigation will contribute to a better functioning of financial markets and, therefore, to a more sustainable recovery."

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