July 16 (Bloomberg) -- The Justice Department said it’s conducting an antitrust probe of the $28 trillion credit-default swap market that may determine if banks were anticompetitive in their use of clearinghouses to back trades.

“The antitrust division is investigating the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries,” Laura Sweeney, a Justice Department spokeswoman in Washington, said in an e-mail yesterday. She declined to elaborate.

The division sent civil investigative notices this month to banks that own London-based Markit Group Ltd. to find out if they have unfair access to price information, according to three people familiar with the matter. Congress plans to increase regulation of the $592 trillion over-the-counter derivatives market, which includes credit-default swaps blamed for helping worsen the biggest financial calamity since the Great Depression.

Markit provides derivative and bond data to more than 1,500 customers. It owns the most actively-traded credit swap indexes and pricing services in the market, which represents $28 trillion in underlying securities, according to the New York- based Depository Trust & Clearing Corp.

Clearinghouses, capitalized by members, insure both sides against default by the other.

Intercontinental Exchange Inc.’s ICE Trust clearinghouse is the only credit swap trade guarantor, having backed more than $1.3 trillion of the contracts since March. ICE Trust is supported by Wall Street’s largest banks, which will split profit from the venture beginning next year. CME Group Inc.’s CMDX clearing system, in partnership with Chicago-based hedge fund Citadel Investment Group LLC, hasn’t processed any trades.

Competing Clearinghouses

The Justice Department might “be exploring big banks’ failure to deal with competing clearinghouse ventures like the CME’s,” said Craig Pirrong, a finance professor at the University of Houston.

Kelly Loeffler, a spokeswoman for Atlanta-based Intercontinental, and Mary Haffenberg, a spokeswoman for Chicago’s CME Group, declined to comment.

New York-based JPMorgan Chase & Co. is Markit’s largest shareholder, followed by Bank of America Corp. of Charlotte, North Carolina, Edinburgh-based Royal Bank of Scotland Group Plc and New York-based Goldman Sachs Group Inc., according to filings at U.K. Companies House. All four, as well as Morgan Stanley of New York, Frankfurt-based Deutsche Bank AG, Zurich- based UBS AG and others, are members of ICE Trust that will receive profits beginning 2010.

Bloomberg LP, the owner of Bloomberg News, competes with Markit in selling information to the financial-services industry.

Market Balloons

Credit-default swaps -- contracts that protect against or speculate on defaults by paying the buyer the face value of a bond or loan if a borrower fails to meet its debt agreements -- ballooned almost 100-fold within seven years to represent about $62 trillion by the end of 2007, according to estimates from the New York-based International Swaps & Derivatives Association.

Unregulated trading of the contracts made it difficult for the U.S. to assess links between institutions following the collapse of Lehman Brothers Holdings Inc. in September. Credit markets froze when the New York-based firm, once the fourth- largest U.S. investment bank, filed for the world’s biggest bankruptcy.

The U.S. Federal Reserve determined that ICE Trust is as risky as any insured bank, according to a letter posted July 14 on the regulator’s Web site. The Fed is requiring that bank members of ICE Trust, such as Goldman Sachs and New York-based Citigroup Inc., set aside the same amount of capital as parties trading as federally-backed lenders.

The Obama administration wants all trades of over-the- counter derivatives to be backed by clearinghouses or registered with regulators. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net;

Last Updated: July 16, 2009 00:01 EDT