$1.87B securities settlement has been reached with 12 major banks. The case resolves investor claims that the financial firms conspired to rig prices to hold back competition in the credit default market. For now, the resolution is an agreement in principal and the parties have two weeks to work out the details before turning the deal over to U.S. District Judge Denise Cote in Manhattan for preliminary approval.
The defendants in this credit default case are:
· Barclays (BARC)
· Royal Bank of Scotland Group Plc (RBS)
· BNP Paribas SA (BNP)
· JPMorgan Chase (JPM)
· HSBC Holdings Plc (HSBC)
Markit Ltd and the International Swaps and Derivatives Association are also defendants.
The plaintiffs in the case are institutional investors, including the Los Angeles County Retirement Association, Essex Regional Retirement System, State Universities Retirement System of Illinois, MF Global Capital LLC, Sheet Metal Workers Local No. 33 Cleveland District Pension Plan, Value Recovery Fund LLC, Fund Liquidation Holdings LLC, Delta Pleiades, LP, and others. They are accusing the defendants of monopolizing trading trying to control the market for information, and violating U.S. antitrust laws. They believe that the banks made billions of dollars in profits that were “supracompetitive” by taking advantage of the CDS market’s “price opacity.”
In their complaint, the investors argued that the defendants traded the CDS in a manner that allowed them to be the ones with the key price information and make “exorbitant” profits while the plaintiffs suffered “direct expense” as a result. They maintain that the banks profited on nearly “every CDS transaction.” Meantime, the investors were only able to depend on limited information. They contend that they typically had no concept of how much a broker made from transactions.
The defendants also are accused of conspiring with one another to impede a credit default swap exchange that derivatives market operator CME Group Inc. and hedge fund Citadel Group LLC had planned by consenting to boycott the exchange for as long as Citadel was a part of it. To resolve the case, the banks will pay designated amounts contingent upon their respective share of trading in CDSs.
Meantime, the banks remain adamant that no antitrust conspiracy took place. They believe that group members supported proposals that would enhance competition in the market but that there is not much demand for exchange trading contracts.
Credit default swaps are used to hedge against potential borrower default. The contracts fluctuate and trade often. Credit default swaps can be complex and hard to understand even for the most sophisticated institutional investors, including pension funds, school districts, smaller financial institutions, and others. Unfortunately, while CDSs are often marketed as safe and viable with the potential for higher return rates, their risks are much greater than a lot of similarly ranked investments.
Big banks close to $1.9B settlement in price-fixing case, Chicago Tribune, September 14, 2015
JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC), Citigroup Inc (C) And Others Agree To Pay $1.86 Billion, Wall Street Scope, September 14, 2015