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March 26, 2013 4:26 pm
The body that represents the world’s biggest banks that trade financial derivatives was dragged into an EU-wide antitrust probe on Tuesday.
Brussels alleges that the International Swaps and Derivatives Association may have helped investment banks to block rivals from establishing their own derivatives trading platforms, an accusation that raises fresh fears of regulatory trouble for the financial sector.
“The [European] Commission’s inquiry found preliminary indications that ISDA may have been involved in a co-ordinated effort of investment banks to delay or prevent exchanges from entering the credit derivatives business,” the EU’s executive body said.
“Such behaviour, if established, would stifle competition in the internal market in breach of EU antitrust rules. The opening of an investigation does not prejudge its outcome,” the commission added.
The probe is being closely watched by the banking sector as EU lawmakers have repeatedly blamed the lack of transparency in the derivatives markets as well as speculation in credit default swaps for worsening the eurozone sovereign debt crisis.
CDS are tradeable financial instruments that allow investors to bet on the likelihood of debt default or hedge against such risk. Sellers of CDS, for a fee, promise some compensation should a borrower such as a company or government default.
The EU has the power to sanction companies that breach competition rules with fines as high as 10 per cent of revenue.
ISDA, which represents 800 financial institutions, said it was aware of being under investigation and said that it had not breached EU competition law.
“ISDA is confident that it has acted properly at all times and has not infringed EU competition rules. ISDA is co-operating fully with regulatory authorities,” it said in a statement.
The EU’s top competition watchdog has been probing 16 banks for nearly two years over market abuse allegations. They are analysing whether banks have colluded with Markit, a market leader in CDS information, to exclude the data provider’s rivals, including Thomson Reuters and Bloomberg.
The 16 CDS bank dealers being probed are JPMorgan, Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, RBS, UBS, Wells Fargo, Crédit Agricole and Société Générale. All banks and Markit deny any wrongdoing and are co-operating with the commission.
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