EU claims top banks colluded on derivatives

THIRTEEN leading investment banks were yesterday charged with colluding to prevent new entrants in the lucrative credit derivatives market, in a move that could land some of the financial world’s biggest firms with major fines.

The EC said it had come to a preliminary conclusion that the banks may have broken competition rules and coordinated behaviour to stop exchanges entering the $10 trillion (£6.6 trillion) market between 2006 and 2009.

EU competition commissioner Joaquin Almunia said their actions may have increased market instability during the financial crisis.

Credit default swaps (CDS) enable investors to reduce the risk a borrower will default on a loan. But since every CDS is produced for an individual firm, they were traditionally traded over the counter, leaving banks to pick up fees by acting as the middleman.

Following a two-year investigation the EU alleges that both Deutsche Borse and the Chicago Mercantile Exchange attempted to set up clearing services and exchanges for CDS products but were refused licences to crucial data by Markit and the International Swaps and Derivatives Association (ISDA).

The EU claims the firms were acting under pressure from the banks, which include BofAML, Barclays, Bear Stearns, BNP Paribas, HSBC, Citigroup, Credit Suisse, RBS, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS. Markit did not comment but ISDA said it had not broken any rules.