Keep an Eye on CDS Probe

Given the European Commission’s track record for tenacity, we will be closely watching developments surrounding their recently announced probe into possible collusion among leading market participants and their hand-picked market data and trade clearing providers in the Credit Default Swaps (“CDS”) market.

Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, RBS, Societe Generale and Wells Fargo are among the group of 16 investment banks that have been accused of colluding to impede equal access to detailed trading data provided by Markit and level access to trade clearing platforms, other than their prefered provider,  known as ICE Clear Europe.

The Commission is pursuing two anti-trust cases, the first against the banks and Markit and the second against the banks and ICE.  In both cases, the Commission is investigating whether the banks have intentionally limited competition by placing a stranglehold on information that might otherwise be available to other providers of market data (in the case involving  Markit ) and by limiting access to most efficient execution by limiting access to the CDS market for competing clearing organizations (in the case involving ICE).

Given the ownership makeup of both Markit and ICE (i.e. many of the same banks named in the investigation are also “owners” of these two utilities), it is not hard to understand why the commission might be concerned.

For many years the CDS market has operated on the fringe of the mainstream markets, with many otherwise sophisticated market participants knowing little and often understanding less about how this market operates.  Given how deeply the Commission has sunk its teeth into other antitrust investigations it has pursued over the past 10 years, we suspect that this one has some legs and will be a story worth following.

About markferraris
Managing Principal Orchard Street Partners LLC

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