| NEW YORK, July 12
NEW YORK, July 12 Four Danish pension funds have
filed a lawsuit against twelve large banks, accusing them of
increasing costs for investors trading in the $27 trillion
credit default swap (CDS) market by stopping exchanges from
entering the market.
The case, filed on Thursday in the U.S. District Court in
the Northern District of Illinois, follows a similar suit filed
in May by an Ohio-based pension fund, the Sheet Metal Workers
Local 33 Cleveland District Pension Plan, in the same court.
The funds allege that dealers used their ownership and
controls over clearing, data and other entities crucial to the
market to block an independent clearinghouse from offering
exchange-trading, deny market participants real-time price
information and stop new participants from entering the market.
The CME Group, the world's largest derivatives
exchange and Chicago-based hedge fund Citadel Group, planned to
offer CDS exchange trading in 2008 before dropping the plan the
The banks threatened to withdraw their business from the CME
if it went through with its CDS trading venture, the funds
allege. CDS are used to protect against losses if a borrower
defaults on their debt or to speculate on their credit quality.
The banks used their control over the International Swaps
and Derivatives Association (ISDA), a trade group, and Markit, a
data provider and owner of benchmark indexes, to deny or delay
licenses the exchanges needed to offer CDS trading, according to
The funds also accuse the banks of controlling a CDS
clearinghouse, which is now owned by IntercontinentalExchange
, to keep trading off exchanges and restricting
membership to the clearinghouse to the largest banks.
Markit and ISDA are defendants in the suit and ICE is named
as a co-conspirator.
ISDA spokeswoman Lauren Dobbs said that "we believe that the
allegations against us are without merit and that ISDA acted
properly at all times."
Representatives for all the banks, Markit and ICE either
declined comment or were not immediately available for comment.
The 12 banks named in the complaint are Bank of America Corp
, Barclays, BNP Paribas, Citigroup Inc
, Credit Suisse, Deutsche Bank,
Goldman Sachs Group Inc, HSBC, JPMorgan Chase &
Co, Morgan Stanley, The Royal Bank of Scotland
Banks face potentially large payments from lawsuits and
antitrust investigations for allegedly blocking entry to the CDS
market in order to protect the lucrative revenues they earn in
the opaque market.
The European Commission this month charged 13 banks,
including the 12 named in the lawsuit by the Danish funds, with
stifling competition, saying the initial conclusion from its
antitrust investigation is that banks blocked exchanges,
including the CME, from entering the market.
The U.S. Justice Department has been investigating since at
least 2009 but has made no announcements.
The Danish funds are Unipension Fondsmæglerselskab,
Arkitekternes Pensionskasse, MP Pension and Pensionskassen for
Jordbrugsakademikere & Dyrlæger. Collectively they manage around
$17 billion in assets.