Wednesday

23rd Aug 2017

Banks rigged €10 trillion derivatives market, Brussels says

  • The Deutsch Borse was shut out of the derivatives market between 2006-2009 (Photo: stefan)

Thirteen big banks colluded to shut out competition from the multi-trillion euro derivatives market, according to an investigation by the European Commission.

The EU's executive arm said that its investigation, which began in 2011, had uncovered anti-competitive practices during the 2008-9 financial crisis.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

The commission investigation focuses on the credit default swap (CDS) market which allows banks and businesses to hedge against possible losses. However, more controversially, they were used by Goldman Sachs and others to speculate on the probability of a Greek debt crisis in 2010.

There are almost 2 million active CDS contracts with a joint notional amount of €10 trillion worldwide.

Most CDS contracts are negotiated privately between so-called 'over the counter' derivatives. However, critics of the practice say that the lack of transparency distorts the market and increases the risk of the parties being unable to meet their obligations.

EU lawmakers adopted legislation on derivatives trading in 2012 requiring all trades to be cleared through an exchange, making the practice more transparent and reducing risk.

The banks allegedly coordinated their behaviour to jointly prevent the Deutsch Bourse stock market and the Chicago Mercantile Exchange from being issued licenses allowing them to enter the CDS market. The two exchanges were allegedly shut out of the market between 2006 and 2009, covering the end of the credit boom and the financial crisis in 2008-9.

In a statement issued on Monday (1 July) the commission commented that its preliminary conclusion was that the banks had "delayed the emergence of exchange trading of these financial products because they feared that it would reduce their revenues."

The banks involved include a handful of Europe's largest financial institutions such as Barclays, BNP Paribas, Deutsche Bank and the Royal Bank of Scotland (RBS).

The UK-based Barclays and RBS were also involved in last year's Libor rate-fixing scandal which saw a handful of big banks rig the interest rate at which banks lend to each other, driving up the price of financial products to customers.

Speaking to journalists on Monday (1 July) EU competition chief Joaquin Almunia warned that fines would be meted out if the market manipulation was confirmed.

EU anti-trust rules allow the Commission to impose fines worth up to 10 percent of a firms annual turnover.

"Exchange trading of credit derivatives improves market transparency and stability," he added, in a nod to the new EU rules.

Airbnb too 'different' to pay EU tax

US home rental firm said its “model is unique” because most of the money stays in pockets of local people, as France and Germany prepare EU tax crackdown.

EU cautious with German diesel plan

The European Commission welcomed the German carmakers' pledge to update software in diesel cars, but is waiting for details on how emissions will be reduced.

News in Brief

  1. EU calls on Serbia and Macedonia to remain calm
  2. Schulz wants US to remove nuclear weapons from Germany
  3. Ukraine and Russia to announce another ceasefire
  4. EU to investigate Monsanto-Bayer merger
  5. US will ask Nato allies to send more troops into Afghanistan
  6. Greece to be absent at event on Communism and Nazism
  7. Czechs want observer status in Eurogroup meetings
  8. Putin sends EU-blacklisted ambassador to US

Stakeholders' Highlights

  1. European Jewish CongressEuropean Governments Must Take Stronger Action Against Terrorism
  2. European Healthy Lifestyle AllianceDoes Genetics Explain Why So Few of Us Have an Ideal Cardiovascular Health?
  3. EU2017EEFuture-Themed Digital Painting Competition Welcomes Artists - Deadline 31 Aug
  4. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  5. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  6. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  7. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  8. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  9. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  10. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  11. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  12. ACCAAnnounces Belt & Road Research at Shanghai Conference