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Megabanks, Markit and ISDA agree to settle CDS suit

A representative of the investor group suing twelve G-SIB banks[1], ISDA and Markit for alleged breaches of US antitrust laws[2], has indicated that a $1.865 bn. settlement has been agreed in principle with the defendants; U.S. District Judge Denise Cole has given the parties two weeks to finalise the details. The plaintiffs alleged that the defendants conspired to control information in the CDS market, with adverse consequences on competition leading to losses due to mispricing. Their case also alleged that the group agreed to exclude new market entrants, CME and Citadel, by refusing to trade on new CDS platforms and by urging ISDA and Markit to withhold licences and data.  Daniel Brocket, the investor group’s lawyer, said “We think it’s historic, it’s one of the largest anti-trust class-action settlements, and an extraordinary result for the class.” While the banks and Markit declined to comment, Lauren Dobbs for ISDA said the “We are pleased this matter is close to resolution. ISDA  remains committed to further developing CDS market structure to ensure the market functions safely and efficiently.”

While the amount is substantial, particularly as regards ISDA and Markit, the sum is likely to be largely borne by the banks, apportioned with respect to their share of the CDS market. The market’s size has declined sharply since 2007, at the end of which outstanding CDS notional was estimated at $62.2 trn., by mid 2014 outstandings had fallen to $16 trn.  The settlement comes against the background of a stalled DOJ probe and ongoing EC scrutiny of the same defendant group on anti-competitive grounds. Although averring that the case’s discovery is under protective order, Mr Brockett said ““We felt we had developed, brick by brick, a very powerful case on the liability”; neither regulator has offered comment on the settlement or their own investigations.

[1] Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, HSBC Holdings Plc, ,JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG

[2] In Re Credit Default Swaps Antitrust Litigation, 13-md-02476, U.S. District Court, Southern District of New York (Manhattan)

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