Court allows swaps suits to proceed

IFR 2195 5 August to 11 August 2017
5 min read
Helen Bartholomew

A US Federal District Court has given the go-ahead for investors to pursue partial claims against some of Wall Street’s largest banks, over allegations that they conspired to limit competition in the US$368trn over-the-counter interest rate derivatives market.

The decision comes just days after the court granted an injunction in a suit brought by start-up swap execution facility trueEX over allegations of anti-competitive conduct by IHS Markit that could force the interest rate swap platform to close.

The two suits both allege efforts by incumbent players to control market structure and determine winners and losers through discriminatory access, according to those familiar with the cases. Plaintiffs in both suits are represented by Daniel Brockett, a partner at Quinn Emanuel Urquhart & Sullivan.

The class-action swaps lawsuit brought by the Public School Teachers’ Pension and Retirement Fund of Chicago alleges that investors were subject to unfavourable swaps pricing as part of a dealer conspiracy to block the development of electronic exchange-based platforms. Start-up platforms Javelin and Tera Group are also plaintiffs in the suit.

TrueEX claims in its lawsuit that MarkitSERV’s decision to terminate a service agreement and deny access to vital post-trade services would force the rapidly growing SEF to shut down. The injunction, which could only be issued on condition that the plaintiff would suffer likely harm and that it faces a likely success at trial, allows trueEX to access those services until the suit settles.

The latest decisions are being viewed as big wins for the plaintiffs in both cases.


“For far too long, the world’s banking giants have shut investors out of electronic trading, and the ruling is a critical victory in levelling the playing field,” said Carol Gilden, a partner at Cohen Milstein Sellers & Toll, representing the Chicago Teachers Pension Fund, and co-lead counsel for the plaintiffs on the class-action lawsuit alongside Quinn Emanuel.

“We will fight to ensure investors have access to the transparency, competitive pricing, and faster execution denied to them by the defendant banks.”


In the class-action swaps suit, 11 defendant banks could face multi-billion dollar settlement costs. A 2015 antitrust suit brought against 12 dealers in the US$10trn credit default swap market saw banks settle for US$1.87bn.

Allegations that the banks must defend in the interest rate swap market have been pared back by the court, however. Judge Paul Engelmayer for the US District Court in Manhattan dismissed claims that defendants conspired to block buyside access to electronic platforms for the period 2007 to 2012. According to Engelmayer, anonymous all-to-all trading was “impossible” without the 2013 Dodd-Frank mandate to centrally clear swaps.

“Before Dodd-Frank made this vital infrastructure a looming reality, there would have [been] no urgency for collective action to block all-to-all exchange trade from emerging,” Engelmayer said in a written judgement.

That means banks must defend antitrust claims relating to the period 2013 to 2016 only - a decision that contrasts with the CDS suit, where conspiracy allegations related to the pre- Dodd-Frank era of 2008 to 2013.

Engelmayer dismissed all claims against HSBC, ruling that a single allegation against the UK bank was insufficient to link it to the alleged conspiracy.

BNP Paribas and UBS were not successful in their attempts to have all claims against them dismissed. Both argued the allegations did not support their role in any conspiracy, but Engelmayer ruled that specific allegations were not required.

“A conspiracy may be proven by circumstantial evidence,” wrote Engelmayer. “A single act may support an inference of involvement in a conspiracy.”

Both banks are alleged to be among a group of four dealers that contacted TeraExchange after its first IRS trade in June 2014, refusing to clear trades on the platform prior to a full rulebook audit. BNPP is also alleged to have threatened buyside firms with higher clearing fees if they traded on the start-up venues.

The 11 defendants are Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, RBS and UBS.

Claims against incumbent trading platforms ICAP and Tradeweb (which is owned by Thomson Reuters, IFR’s parent) were also dismissed as they pre-date the 2013 cut-off.

NEX Group, which owns ICAP Capital Markets, welcomed the dismissal, noting the allegations to be “variously conclusory, insufficient to state a plausible claim, and inadequate to support an inference of participation in any wrongdoing,” it said in a statement.

Spokespeople at the defendant banks declined to comment.

A view of the United States District Court for the Southern District of New York