Commission investigates credit default swaps market

The European Commission today announced that it has opened two
antitrust investigations into the credit default swaps (CDS) market,
with 16 investment banks under the microscope.

In the first investigation, regulators are looking at whether the
banks and UK-based Markit, the leading provider of financial information
in the CDS market, colluded or abused a dominant position in order to
control financial information.

The second investigation relates to
nine of the 16 banks and ICE Clear Europe, the leading clearing house
for CDS. The Commission is looking at whether ICE granted preferential
tariffs to the banks in order to lock them into the ICE system to the
detriment of competitors.

Joaquín Almunia, the European commissioner for competition, said that
“recent developments” had shown that “the trading of this asset class
suffers a number of inefficiencies that cannot be solved through
regulation alone”.

He added: “Lack of transparency in markets can lead to abusive
behaviour and facilitate violations of competition rules and the
Commission should react accordingly.

“I hope our investigation will contribute to a better functioning of
financial markets and, therefore, to a more sustainable recovery.”

CDS are financial instruments used by investors to bet on the possibility of companies or countries defaulting on debt.

The 16 investment banks concerned in the investigation are: JP
Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup,
Commerzbank, Crédit Suisse First Boston, Deutsche Bank, Goldman Sachs,
HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo
Bank/Wachovia, Crédit Agricole and Société Générale.

Under EU rules, companies judged to have breached antitrust regulations can be fined up to 10% of their revenues.