Justice Department Probe of Credit Swaps Said to Widen
A U.S. Justice Department antitrust investigation into data provider Markit Group Ltd. is expanding to include other companies in the credit-default swap market, according to three people familiar with the matter.
Investigators are asking market participants about firms that are owned by Wall Street’s largest banks and whether that presents conflicts of interest, said the people, who spoke on condition of anonymity. The Justice Department is also asking about Tradeweb LLC and The Clearing Corp., which was bought by Atlanta-based Intercontinental Exchange Inc. (ICE) in 2009.
The Justice Department probe of potentially anticompetitive practices at Markit began in 2009. The expansion of the agency’s investigation comes as the $26.5 trillion credit-default swap market faces tighter regulation to increase competition and prevent a repeat of the financial crisis.
“We continue to cooperate and assist the Department of Justice in its review of the credit derivatives and related markets,” Alex Paidas, a spokesman for London-based Markit Group, said in an e-mailed statement. Clayton McGratty, a Tradeweb spokesman, declined to comment. Lee Underwood, an Intercontinental Exchange spokesman, didn’t return a call seeking comment.
Markit provides derivative and bond data to its customers and owns the most actively traded credit-swap indexes and pricing services in the market. Its owners include JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Royal Bank of Scotland Group Plc (RBS) and Goldman Sachs Group Inc.
The recent Justice Department questions focused on Markit’s influence in providing services to the credit-swaps market, according to two people interviewed by investigators. Questions were also asked about Markit’s RED identifier system that is used in the credit-swaps market to legally verify reference-entity and reference-obligation data to allow trades to be confirmed and tracked, the people said.
Alisa Finelli, a Justice Department spokeswoman, declined to comment. The department previously has confirmed its antitrust investigation of the credit derivatives information industry.
Tradeweb, a New York-based bond- and derivatives-trading network, is majority-owned by Thomson Reuters Corp. with the rest split among Goldman Sachs, JPMorgan, Morgan Stanley (MS), Citigroup Inc. (C), Bank of America, Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK), UBS AG, Royal Bank of Scotland and Barclays Plc. (BARC)
The Clearing Corp. was owned by Goldman Sachs, Bank of America, JPMorgan, Citigroup and other dealers prior to being purchased by Intercontinental. The banks now have a profit-sharing agreement with Intercontinental related to its credit swap clearinghouses.
Bloomberg LP, the parent company of Bloomberg News, competes with Tradeweb, Markit and Thomson Reuters in arranging interest-rate, credit-default and other swap trades between investors and banks and in providing financial data and news to investors.