August 1, 2017 / 12:14 PM / a year ago

DERIVATIVES-Court upholds partial claims in swaps antitrust

LONDON, Aug 1 (IFR) - A US District Court judge has given the go-ahead for investors to pursue partial claims against some of Wall Street’s largest banks over allegations they conspired to limit competition in the US$368trn over-the-counter interest rate derivatives market.

In the class action lawsuit originally brought by the Public School Teachers’ Pension and Retirement Fund of Chicago, Judge Paul Engelmayer, for the US District Court in Manhattan, upheld antitrust claims relating to events between 2013 and 2016, while claims relating to the period 2007 to 2012 were dismissed against all defendants.

Engelmayer also dismissed all claims against HSBC, and trading platforms ICAP and Tradeweb.

The eleven remaining defendants are Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, RBS and UBS.

The suit alleges that investors were subject to unfavourable pricing in the interest rate swap market as a result of dealers conspiring to block the development of electronic exchange-based platforms. A second group of plaintiffs led by start-up platform providers Javelin Capital Markets and Tera Group, allege that dealers conspired to boycott and undermine platforms that would have supplied investors with more competitive IRS prices.

“For far too long, the world’s banking giants have shut investors out of electronic trading, and the ruling is a critical victory in levelling the playing field,” said Carol Gilden, a partner at Cohen Milstein Sellers & Toll, representing the Chicago Teachers Pension Fund.

“We will fight to ensure investors have access to the transparency, competitive pricing, and faster execution denied to them by the defendant banks.”

Cohen Milstein is co-lead counsel for the plaintiffs alongside Quinn Emanuel Urquhart & Sullivan.


Engelmayer ruled that a single allegation against HSBC was insufficient to link it to the alleged conspiracy. The suit claimed only that the bank stalled its consideration over whether to provide clearing for TeraExchange for more than a year before refusing to clear for the platform. All claims against the UK bank have been dismissed.

Allegations against incumbent platforms, ICAP and Tradeweb, which is part-owned by IFR’s parent, Thomson Reuters, were also dismissed as they largely pre-date the 2013 cut-off. According to Engelmayer, the Dodd-Frank clearing mandate constituted a material change in the structure and nature of the swap market, giving rise to all-to-all anonymous trading.

“Central clearing did not develop until 2013, when Dodd-Frank’s mandates made it compulsory for most IRS trading. And without it, anonymous all-to-all exchange trading was impossible,” said Engelmayer in his report. “Before Dodd-Frank made this vital infrastructure a looming reality, there would have no urgency for collective action to block all-to-all exchange trade from emerging.”

NEX Group, which retained ICAP Capital Markets following the sale of ICAP broking operations to Tullett Prebon, welcomed the dismissal of claims. The dismissal also extends to two former ICAP swap execution facilities that were transferred to Tullett as part of the deal.

“We are pleased that the opinion by US District Judge Paul Engelmayer found the claims by plaintiffs to be variously conclusory, insufficient to state a plausible claim, and inadequate to support an inference of participation in any wrongdoing,” NEX said in a statement.

Motions brought by BNP Paribas and UBS to dismiss all claims against them were not upheld by the court. BNPP argued that the complaint did not adequately support its participation in the conspiracy and that there were no allegations the French dealer blocked access to another upstart platform, TrueEx.

“Those specific allegations were not required,” said Engelmayer in the report. “A conspiracy may be proven by circumstantial evidence.”

BNPP is alleged to be one of four dealers that contacted Tera after its first IRS trade in June 2014, refusing to provide clearing services for the platform pending an audit of its rulebook. The bank is also alleged to have refused to make markets on Javelin and Tera and to have threatened buyside firms with increased clearing fees if they traded on those venues.

Claims against UBS were also partially upheld, despite the bank’s longstanding opposition to “name give-up” - a practice that has kept buyside firms out of dealer pools by forcing counterparties to reveal their identity following a trade.

The Swiss bank is also alleged to have been one of the four dealers that refused to clear trades on the Tera platform prior to a full rulebook audit.

“That act, and the claim that UBS refused to make markets on the new all-to-all platforms, is sufficient to link UBS to the alleged conspiracy,” said Engelmayer. “UBS’s opposition to “name give-up” would certainly supply a basis not to infer its participation, but it does not make the claim of such participation implausible.”

Engelmayer called on counsel to reach an agreement on managing the case by August 18.

Spokespeople for Barclays, BNP Paribas, HSBC, JP Morgan, RBS, and UBS declined to comment while other banks contacted by IFR could not immediately be reached for comment. (Reporting by Helen Bartholomew)

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