Banks Accused of Blocking Market for Derivatives ; E.U. Says It Has Proof That 19 Firms Colluded on Trading in Credit Swaps

Article excerpt

Regulators said they had found evidence that the banks tried to prevent exchanges from entering the market for credit-default swaps.

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 from 2006 to 2009.

The 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 Borse 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 cannot pay. …