Big Banks Accused of Monopolizing Interest Rate-Swap Market

  • Buy-side investors portrayed as stuck in antiquated OTC market
  • Dealers accused of blocking competition to preserve profits

Twelve of the biggest players in interest-rate swap trading were sued for allegedly conspiring to block fund managers from entering the exchange market.

The antitrust complaint filed in New York federal court by a public pension fund names most of the biggest U.S. and European investment banks among the defendants as well as trading platforms ICAP Capital Markets LLC and Tradeweb Markets LLC.

Big banks have been accused of colluding in other areas of trading such as interbank rates, currencies and credit default swaps. Financial institutions have paid billions of dollars to settle some of the cases brought by investors and governments.

In their role as interest rate swap market-makers, the banks have prevented buy-side investors from trading the swaps on exchanges, according to the complaint. The total notional value of interest-rate swaps outstanding was about $320 trillion in the first half of 2015, according to a report this month by the Bank for International Settlements.

‘Inefficient and Antiquated’

Buy-side investors are stuck in the banks’ “inefficient and antiquated” over-the-counter market and blocked from transparent, competitive pricing and faster trades so the dealers can preserve “an extraordinary profit center,” according to the complaint. This has allowed the dealers to “extract billions of dollars in monopoly rents, year after year,” the Chicago school teachers’ pension fund alleged in the complaint.

The fund seeks class-action status and triple damages, as allowed under federal law.

The swaps, a type of derivative that can swing in value when central banks raise or lower rates, help pension funds, companies and municipalities manage risk and insulate themselves from changes in monetary policy.

Defendants Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. declined to comment on the lawsuit. UBS Group AG, Barclays Plc, Credit Suisse Group AG and Deutsche Bank AG also declined to comment.

Clayton McGratty, a spokesman for Tradeweb, said the company doesn’t comment on pending litigation. ICAP also declined to comment.

Jennifer Zuccarelli, a spokeswoman for JPMorgan Chase & Co., didn’t immediately respond after regular business hours to an e-mail seeking comment.

The lawsuit was reported earlier by Reuters.

The case is Public School Teachers’ Pension and Retirement Fund of Chicago v. Bank of America Corp., 1:15-cv-09319, U.S. District Court, Southern District of New York (Manhattan)>

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