Twelve major banks have reached a US$1.87bn settlement to resolve investor claims that they conspired to fix prices and limit competition in the market for credit default swaps.
Investors including the Los Angeles County Employees Retirement Association and Salix Capital US were awarded the payout after claiming the defendants’ activity between 2008 and 2013 caused them to pay unfair prices on CDS trades, even though improved liquidity should have driven costs lower.
The plaintiffs in the US District Court claimed that banks, supported by information provider Markit and the International Swaps and Derivatives Association, ”actively prevented non-dealers from accessing the benefits of the inter-dealer market, striving to ensure that each CDS transaction included at least one dealer.”
Through that conspiracy, firms including Citadel, CME, Eurex and Liffe were thwarted in their attempts to set up electronic venues for the trading of CDS, the plaintiffs said.
“We think it’s historic,” Daniel Brockett, the investors’ lawyer, said in an interview. “It’s one of the largest antitrust class-action settlements, and an extraordinary result for the class.”
The defendants included Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, RBS and UBS. Information provider Markit and the International Swaps and Derivatives Association were also accused.
The CDS market peaked at US$58trn in 2007, according to the Bank for International Settlements, shrinking to US$16trn seven years later, partly as a result of trade compression.
An ISDA spokeswoman said the group is “pleased the matter is close to resolution” and committed to helping ensure the safe and efficient functioning of the CDS market.
Representatives for the other defendants declined to comment.
US and European regulators have also examined potential anti-competitive practices in the CDS market, though the European probe appears to have been at least partly suspended, IFR reported.
Investors’ lawyer Brockett, a partner at Quinn Emanuel Urquhart & Sullivan, said the sides have been given two weeks to iron out details before submitting a settlement for her preliminary approval.
The case is In re: Credit Default Swaps Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-md-02476.
