ISDA Caught Up in EU Probe of Credit-Default Swap Data
The International Swaps & Derivatives Association, a financial industry derivatives group, is being probed as part of a European Union antitrust investigation into how data on credit derivatives is shared.
Regulators found “indications that ISDA may have been involved in a coordinated effort of investment banks to delay or prevent exchanges from entering the credit derivatives business,” the European Commission said in a statement today. The EU started a probe in April 2011 into whether 16 lenders, including Citigroup Inc. (C) and Deutsche Bank AG (DBK), colluded by giving pricing information to data provider Markit Group Ltd.
The EU’s probes add to separate antitrust investigations into whether banks colluded to manipulate benchmark lending rates, including the London interbank offered rate. The U.S. Justice Department is also probing the credit derivatives clearing, trading and information services industries.
“It can often be difficult to prove that collusion or market distorting activities have been taking place,” Richard Reid, an economist at the University of Dundee in Scotland, said in an e-mailed statement. “Sometimes investigations like these are used to push for changes in the way certain markets operate in order to make the process more accountable in the future.”
Global regulators have sought to toughen oversight of the credit-default swap market, arguing the trades helped fuel the financial crisis. The EU has the power to levy fines as much as 10 percent of revenue in antitrust cases.
The commission “is examining whether a number of investment banks may have used Markit, the leading provider of financial information in the CDS market, to foreclose the development of certain CDS trading platforms,” the regulator said. “This could have been achieved through collusion or an abuse of a possible collective dominance.”
ISDA is cooperating with regulators and “is confident that it has acted properly at all times and has not infringed EU competition rules,” the organization said in an e-mailed statement. Markit officials didn’t respond to a phone call seeking comment.
ISDA, based in New York and founded in 1985, has more than 800 member institutions from 60 countries, according to its website. As well as banks, the organization represents governments, investment managers, law firms and accountants.
European Union Competition Commissioner Joaquin Almunia said the financial industry lacks transparency, creating the “temptation” to flout antitrust rules, in a speech in Melbourne last week, citing the CDS market probe. Almunia said the EU will intervene when necessary and that the industry “needs a genuine change of culture.”
The cost of insuring corporate debt in Europe fell from the highest levels in four months today. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies declined three basis points to 122 at 1:24 p.m. in London.
Markit provides derivative and bond data to more than 1,500 customers. Bloomberg LP, the parent company of Bloomberg News, competes with Markit in providing financial information.
CDS are derivatives that pay the buyer face value of a security if a borrower defaults. Dealers of credit-default swaps in Europe bowed to pressure from the EU in 2009 to conduct trades through clearinghouses, such as ICE Clear Europe Ltd., to cut risk to the financial system.
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