Tuesday, December 1, 2015

Swap Dealers Sued as Monopolists

On November 25, 2015, the Chicago Public School Teachers’ Pension and Retirement Fund and other institutional investors filed a class action lawsuit in federal court alleging that ten of the world’s largest investment banks conspired to rig the lucrative interest rate swaps market.  The suit filed in the U.S. District Court in Manhattan accuses the investment banks of violating federal antitrust laws by colluding to create an anti-competitive stranglehold over the market for interest rate swaps for their own profit.  Plaintiffs say the ten defendant banks, Goldman Sachs Group, Bank of America Merrill Lynch, JPMorgan Chase, Citigroup, Credit Suisse Group, Barclays Plc, BNP Paribas SA, UBS, Deutsche Bank AG, and the Royal Bank of Scotland worked together to prevent the trading of interest rate swaps on electronic exchanges, creating a monopoly, and extracting millions of dollars in overpayments from trading clients.


The banks are accused of actively concealing their alleged collusion and, according to the complaint, to maintain their profitable monopoly “have jointly threatened, boycotted, coerced, and otherwise eliminated any entity or practice that had the potential to bring exchange trading to buyside investors.”  


In addition to the investment bank defendants, the suit also alleges that because of equity stakes held by nine of the ten defendant banks in key swaps market trading platforms ICAP and Tradeweb, the two platforms were controlled by the banks and worked as proxies on the banks’ behalf facilitating the antitrust violations and acting as a forum for the banks’ collusive activities.  By preventing interest rate swaps clients from trading on platforms not controlled by the banks and by preventing the development of independent swaps exchanges, plaintiffs allege that the banks were able to keep margins artificially high and "have been able to extract billions of dollars in monopoly rents, year after year, from the class members in this case." 

The case is Public School Teacher’ Pension and Retirement Fund of Chicago v. Bank of America Corporation, et al., New York Southern District Court, Case No. 1:15-cv-09319