| NEW YORK
NEW YORK May 6 A U.S. pension fund has
initiated a class action lawsuit against a group of the world's
largest banks, accusing them of "conspiring" to scuttle
competition in the $27 trillion credit default swap (CDS)
market, in turn raising fund managers' costs.
The case, filed on Friday in the district court in the
Northern District of Illinois, is the first antitrust case
relating to the banks that dominate the credit derivative
The European Commission and the U.S. Department of Justice
are also conducting antitrust investigations into the banks and
Markit relating to anticompetitive behavior in CDS.
In the suit, the Sheet Metal Workers Local 33 Cleveland
District Pension Plan alleges that twelve banks, including Bank
of America Corp, Citigroup Inc, Deutsche Bank
, JPMorgan Chase & Co, Goldman Sachs Group Inc
and Morgan Stanley, acted together to impede
competition in order to protect lucrative revenues they earn
from acting as intermediaries to trades.
The suit also alleges that the banks further used their
dominance of boards and committees at Markit, an index and data
provider, and trade group the International Swaps and
Derivatives Association (ISDA), as well as trade warehouse the
Depositor Trust & Clearing Corp (DTCC) to limit transparency in
the market and to block new market entrants, the suit alleges.
"The CDS market has been starkly divided between those who
control and distort the market and those who, in order to
participate in the market, must abide their distortions," the
fund said in the complaint.
The pension fund traded CDS with Citigroup, it said in the
The case is the latest blow to banks that dominate the $639
trillion privately traded credit, interest rate and equity
derivatives markets, after revelations that the banks sought to
fix the key London Interbank Offered Rate (Libor) spurred
regulatory fines, continuing investigations and lawsuits.
Credit default swaps are used to protect against losses if a
company, country or other borrower cannot repay their debt, and
to speculate on a debt issuer's credit quality. Contracts backed
by risky mortgage-backed debt have been blamed as a key
contributor to the 2007-2009 financial crisis.
The Sheet Metal Workers pension fund alleges that banks cost
fund managers billions of dollars by acting together to stem
exchange trading of credit default swaps. By keeping the market
privately traded, and opaque, the banks were able to profit from
wide spreads for buying and selling the contracts, and maintain
their monopoly in the market, it said.
"The priceswere fixed at artificially derived levels," the
Banks boycotted a joint venture by Chicago-based exchange
CME Group Inc and hedge fund Citadel Group in 2008 to
offer exchange trading of the contracts, the complaint said. The
banks further used their presence on boards and committees at
Markit and ISDA to deny or delay permissions to use licenses
that the CME the needed to offer the contracts, it added.
Banks further acted to set up an alternative clearinghouse,
now owned by the IntercontinentalExchange, that would
not trade the contracts on exchange, allowing the banks to
maintain secrecy of trade pricing, the suit alleges.
Banks further routed all of their CDS trades to that
clearinghouse, ICE Clear Credit, at the expense of the CME
offering. They have also used their influence on the ICE risk
committee to restrict membership to the clearinghouse to the
largest banks, the suit alleges.
ICE has been named as a co-conspirator in the complaint. ICE
spokeswoman Brookly McLaughlin declined comment.
Markit spokesman Alex Paidas said that "Markit has not been
served with the complaint filed by this class action law firm
but we have seen a copy of it. The allegations are wholly
without merit and we will defend ourselves vigorously."
ISDA spokeswoman Lauren Dobbs said: "we believe that the
allegations against us are without merit and that ISDA acted
properly at all times."
Spokespeople for the banks, which also includes Barclays
, BNP Paribas, Credit Suisse, HSBC
, The Royal Bank of Scotland and UBS,
all either declined comment or did not respond to requests for