13 Banks Accused of Blocking CDS Market

Barclays, RBS, Deutsche Bank, Citigroup, UBS and JP Morgan are amongst 13 banks accused by EU Commission of blocking the access for exchanges to the CDS market on fears that this would reduce their profits.

Deutsche Börse and Chicago Mercantile Exchange were refused licences between 2006-2009 by ISDA and Markit, which are controlled by banks, to trade credit derivatives in the more lucrative OTC market.

Since the exchange trading allows investors to deal with one-another directly, that would eliminate the participation of banks as intermediaries and reduce their income.

Credit Default Swaps are a form of insurance against default on bond payments and are used by investors to insure against risk and speculate on creditworthiness. The market in 2013 is estimated to be worth  € 10 trillion gross notional amount with about 2 million active CDS contracts world-wide (source DTCC).

Report also reveals that banks were trying to shut out exchanges in other ways, including coordinating the choice of preferred clearing house.

The EU antitrust law may impose fines of up to 10% of worldwide turnover of the involved companies but before that may happen, companies can submit their defence statements which will be examined by the commission.

For more information check Europa Press Release.

Eureka Financial provides courses on derivatives, repo market, securities settlement, payments, electronic banking and more. For more information about the training visit Eurekafinancial.com

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