European Commission Probes Banks Over CDS


On April 29th, the European Commission (the “EC”), the executive body of the European Union, announced it had opened two antitrust investigations in connection with the credit default swap (“CDS”) market. In the first probe, the EC is investigating whether 16 U.S. and European banks that deal in CDS and Markit, the primary provider of financial information for CDS, have colluded and/or have abused their collective dominance in an effort to control financial information on CDS. The banks being investigated give most of the pricing, indices and other essential data for the trading of CDS only to Markit. The focus of the investigation is on whether this practice is the consequence of collusion or abuse of their collective dominance and has the effect of restricting access to the raw data from other information service providers. The investigation will also look into whether Markit’s license and distribution agreements are abusive and impede competition in the CDS information services market.

In the second probe, the EC is investigating nine U.S. and European banks in connection with agreements the banks entered into with ICE Clear Europe (“ICE”), the leading clearinghouse for CDS, when they sold an independent derivatives clearinghouse, named The Clearing Corporation, to ICE. In particular, the investigation is examining whether provisions in these agreements for preferential fees and profit sharing arrangements for the banks created an overpowering incentive for the banks to exclusively use ICE as a clearinghouse, effectively locking them into the ICE system to the detriment of competitor clearinghouses and leading other CDS market participants to also clear trades through ICE.