EU includes ISDA in credit derivatives investigation

BRUSSELS Tue Mar 26, 2013 5:23pm GMT

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BRUSSELS (Reuters) - The International Swaps and Derivatives Association (ISDA) may have joined with investment banks to keep exchanges out of the credit derivatives market, European Union regulators said on Tuesday, expanding an investigation into the sector.

"The (European) Commission's inquiry found preliminary indications that ISDA may have been involved in a coordinated effort of investment banks to delay or prevent exchanges from entering the credit derivatives business," the EU executive said in a statement.

The EU antitrust regulators' scrutiny of the credit default swaps (CDS) industry is one of several by the European Commission into financial services since the financial crisis. Lack of transparency in derivatives played a central role in the 2007-09 crisis, leading to calls for action to make this business less opaque.

Credit default swaps (CDS) are over-the-counter contracts that bet on whether a company or country will default on its bonds within a fixed period of time.

ISDA said it was cooperating with the regulatory authorities. "ISDA is confident that it has acted properly at all times and has not infringed EU competition rules."

ISDA, the trade body for the derivatives industry, has more than 800 members including banks, companies, government entities, investment managers and commodities firms from 60 countries.

The EU's two main derivatives exchanges are Eurex, part of Deutsche Boerse (DB1Gn.DE), and LIFFE, owned by NYSE Euronext NYX.N.

Eurex, which had no comment on Tuesday's announcement, tried to launch the world's first exchange traded credit derivatives contract in March 2007 but has failed to attract any volume from banks. LIFFE, which also had no comment, does not list any credit derivatives contracts.

The Commission, which acts as EU competition watchdog, first opened its CDS investigation in April 2011, listing 16 banks and financial data company Markit.

This focused on whether the banks may have worked with Markit to block the development of certain CDS trading platforms.

The Commission has now dropped some banks from this list of 16 from the investigation, two people familiar with the matter said. "Several of the banks have been excluded," said one of the sources, who declined to be named or to identify the banks, because of the sensitivity of the matter.

The Commission said in 2011 that banks under investigation included JP Morgan (JPM.N), Bank of America Merrill Lynch (BAC.N), Goldman Sachs (GS.N), Deutsche Bank (DBKGn.DE), Citigroup (C.N), Barclays (BARC.L) and BNP Paribas (BNPP.PA).

Societe Generale (SOGN.PA), Commerzbank (CBKG.DE), Credit Suisse First Boston (CSGN.VX), HSBC (HSBA.L), Morgan Stanley (MS.N), Royal Bank of Scotland (RBS.L), UBS UBSN.VX, Wells Fargo Bank/Wachovia (WFC.N) and Credit Agricole (CAGR.PA) were also named.

(Additional reporting by Huw Jones in London; editing by Louise Heavens and Jane Merriman)

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