Monday

20th Sep 2021

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.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

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.

Vietnam jails journalist critical of EU trade deal

A journalist who had demanded the EU postpone its trade deal with Vietnam until human rights improved has been sentenced to 15 years in jail. The EU Commission says it first needs to conduct a detailed analysis before responding.

Stakeholders' Highlights

  1. Nordic Council of MinistersNATO Secretary General guest at the Session of the Nordic Council
  2. Nordic Council of MinistersCan you love whoever you want in care homes?
  3. Nordic Council of MinistersNineteen demands by Nordic young people to save biodiversity
  4. Nordic Council of MinistersSustainable public procurement is an effective way to achieve global goals
  5. Nordic Council of MinistersNordic Council enters into formal relations with European Parliament
  6. Nordic Council of MinistersWomen more active in violent extremist circles than first assumed

Latest News

  1. Netherlands against more rights for rejected asylum-seekers
  2. EU fishing fleet gets up to €1.5bn tax break, despite emissions
  3. Loophole: Italy's vaccinated migrants can't get Covid pass
  4. UN annual meeting plus Poland in focus This WEEK
  5. No EU strategic autonomy without Libyan stability
  6. MEPs suspect Gazprom manipulating gas price
  7. Fast fashion vs. climate - how 'repair & resell' is the new model
  8. Right of reply: Erik Bergkvist, S&D MEP and shadow rapporteur

Join EUobserver

Support quality EU news

Join us