EU Probe of Credit-Default Swaps Touches ISDA

Regulators look at whether trade group was involved in effort to limit new entrants to market.

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. and Deutsche Bank AG, colluded by giving pricing information to data provider Markit Group Ltd.

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.”

Global regulators have sought to toughen oversight of the credit-default swap market, arguing the trades helped fuel the financial crisis. 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.

“ISDA 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. “ISDA is co-operating fully with regulatory authorities.”

The EU has the power to levy fines as much as 10 percent of revenue in antitrust cases. Markit officials didn’t respond to a phone call seeking comment.

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.”

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.

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 data.

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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