Thursday

22nd Feb 2018

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 for a 30 day free trial.

  1. €150 per year
  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.

Analysis

We are not (yet) one people

Talks on the next EU budget will start on Friday. Brussels wants to do much more than before – and needs a lot more money. But arguing about funds won't be enough.

News in Brief

  1. Belgian PM to host 11 EU leaders ahead of summit
  2. Tusk all but rules out pan-EU candidates in 2019 elections
  3. Tusk: EU budget agreed before 2019 elections 'unrealistic'
  4. Commission fines car cartels €546m
  5. Juncker: 'nothing' wrong in Katainen meeting Barroso
  6. Juncker appoints new head of cabinet
  7. MEPs decide not to veto fossil fuel projects list
  8. Factory relocation risks drawing Vestager into Italian election

Stakeholders' Highlights

  1. Aid & Trade LondonJoin Thousands of Stakeholders of the Global Aid Industry at Aid & Trade London
  2. Macedonian Human Rights Movement Int.European Free Alliance Joins MHRMI to End the Anti-Macedonian Name Negotiations
  3. International Climate ShowSupporting Start-Ups & SMEs in the Energy Transition. 21 February in Brussels
  4. Mission of China to the EUChina-EU Tourism Year to Promote Business and Mutual Ties
  5. European Jewish CongressAt “An End to Antisemitism!” Conference, Dr. Kantor Calls for Ambitious Solutions
  6. UNESDAA Year Ago UNESDA Members Pledged to Reduce Added Sugars in Soft Drinks by 10%
  7. International Partnership for Human RightsUzbekistan: Investigate Torture of Journalist
  8. EPSUMovie Premiere: 'Up to The Last Drop' - 22 February, Brussels
  9. CESICESI@Noon on ‘Digitalisation & Future of Work: Social Protection For All?’ - March 7
  10. UNICEFExecutive Director's Committment to Tackling Sexual Exploitation and Abuse of Children
  11. Nordic Council of MinistersState of the Nordic Region 2018: Facts, Figures and Rankings of the 74 Regions
  12. Mission of China to the EUDigital Economy Shaping China's Future, Over 30% of GDP

Latest News

  1. UK seeks flexible transition length after Brexit
  2. Commission defence of Barroso meeting leaves 'discrepancies'
  3. MEPs bar WMD and killer robots from new EU arms fund
  4. Canete gets EU parliament pension while still commissioner
  5. Bank of Latvia sends deputy to ECB amid bribery probe
  6. We are not (yet) one people
  7. Intellectual property protection - the cure for Europe's ills
  8. Eastern states push back at rule of law conditions on funds