European Commission to include ISDA in CDS investigation

GLOBAL – The European Commission said yesterday it has extended the scope of its investigation into credit default swaps (CDS) after it found "preliminary indications" that the International Swaps and Derivatives Association (ISDA) may have been involved in an antitrust case alongside some of the world's largest banks.

The investigation, launched by the Commission in April 2011, aims to assess whether a number of investment banks used Markit, the leading provider of financial information in the CDS market, to impede the development of certain CDS trading platforms.

Pension funds traditionally use CDS instruments to hedge some of their liabilities.

According to the Commission, the "dominant" position taken by banks could have been achieved through "collusion" or "an abuse of a possible collective dominance".

As part of its investigation, the Commission said it found "preliminary indications" that the ISDA may have been involved in this "coordinated effort" to delay or prevent exchanges from entering the credit derivatives business.

In a statement, the Commission said: "Such behaviour, if established, would stifle competition in the internal market in breach of EU antitrust rules."

The Commission stressed that it had informed ISDA and the national competition authorities that it extended proceedings in this case.

It also referred to articles 101 and 102 of the treaty on the functioning of the European Union, which prohibit anticompetitive agreements and the abuse of dominant positions.

The Commission went on to say that the implementation of these principles is also defined in the EU's Antitrust Regulation, which can be applied by national competition authorities.

According to Brussels, there is no legal deadline to complete antitrust investigations.

The duration of an antitrust investigation depends on a number of factors, including the complexity of the case, the extent to which the undertaking concerned cooperates with the Commission and the exercise of the rights of defence.

Contacted by IPE, a spokeswoman at the ISDA said the association was "aware" that it had been made subject to the proceedings.

"ISDA is confident it has acted properly at all times and has not infringed EU competition rules," she added.

The spokeswoman finally said that the ISDA was co-operating fully with regulatory authorities.

The investigation launched by the Commission back in April 2011 involved JP Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Crédit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo Bank/Wachovia, Crédit Agricole and Société Générale.