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EU accuses top banks in derivatives cartel probe

Thirteen top investment banks including Barclays, Deutsche Bank and Goldman Sachs have been accused of colluding over derivatives trading – a serious breach of EU antitrust rules.

THE EUROPEAN COMMISSION said on Monday it suspected that 13 top investment banks including Barclays, Deutsche Bank and Goldman Sachs, colluded over derivatives trading in breach of EU antitrust rules.

A preliminary investigation showed that banks colluded to exclude exchanges from the over-the-counter market because they feared involvement by the exchanges “would have reduced their revenues from acting as intermediaries,” the Commission said.

The banks instead allegedly continued over-the-counter trading in the massive credit default swaps (CDS) market between 2006 and 2009 — an opaque business that was seen as contributing to the global financial crisis, the Commission said in a statement.

The EU’s Competition Commissioner Joaquin Almunia said the banks would now have the chance to respond to the accusations, and that if the charges were confirmed once the investigation was completed they could face fines.

“If it is confirmed that banks collectively blocked exchanges from the derivatives market, the Commission could decide to impose sanctions,” Almunia said at a press briefing.

A ‘serious breach of our competition rules’

“Exchange trading of credit derivatives improves market transparency and stability,” he said, adding that collusion between the banks to prevent this type of trading would be “a serious breach of our competition rules”.

Almunia declined to give an estimate of the size of possible fines on the banks but he said the CDS market at the moment is worth about 10 trillion euros ($13 trillion).

The collapse of Lehman Brothers in 2008 “showed how derivatives trading is able to destabilise the entire financial system,” Almunia said.

The European Commission investigation began in 2011 and has focussed on claims that Deutsche Boerse stock market and the Chicago Mercantile Exchange were excluded from the derivatives market.

It said the two exchanges decided to turn to the International Swaps and Derivatives Association (ISDA) and data service provider Markit to obtain the necessary licences.

But the banks “had instructed them not to do so”, Almunia said.

- © AFP, 2013

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