Isda and Markit offer concessions on CDS licensing to address anti-trust concerns

Isda and Markit offer concessions on CDS licensing to address anti-trust concerns

The International Swaps and Derivatives Association (Isda) and Markit are promising to implement reforms to the licensing of data and indices on credit default swaps to stave off an ongoing anti-trust investigation by the European Commission.

In July 2013, the Commission issued a Statement of Objections against Isda, Markit and 13 investment banks, where it set out its concerns regarding the blocking of a market for the exchange trading of credit derivatives. The Commission closed its probe into the banks last year, but continued to hold Isda and Markit in breach of anti-trust rules.

According to the Commission's preliminary concerns, Isda and Markit refused to license to exchange trading platforms certain data and indices used by the industry for the pricing of CDS.

"This may have blocked or delayed the emergence of an effective market for exchange traded credit derivatives," states the Commission.

In bending to Commission's findings, Isda has agreed to license all its rights in the Final Price for the purpose of exchange trading, clearing and/or settling of credit derivatives on 'fair, reasonable and non-discriminatory' terms and to switch responsibility for licensing decisions away from the association's banking board to the CEO.

Markit, likewise, has agreed to license its rights in the iTraxx and CDX indices and to prevent investment banks from influencing the firm's management in taking individual licensing decisions.

The Commission is inviting public comment on the concessions over the course of the next month. If the proposed reforms are passed, the Commission says it may act to make the commitments legally binding. Futures breaches would then incur a fine of up to 10% of the offending company's worldwide turnover, without having to establish an infringement of EU antitrust rules.

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