Some of Wall Street’s biggest financial institutions -- including Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. and HSBC Holdings Plc -- have agreed to a $1.87 billion settlement to resolve allegations they conspired to limit competition in the lucrative credit-default swaps market.
The banks reached an agreement in principle with a group of investors that included the Los Angeles County Employees Retirement Association, Daniel Brockett, a lawyer for the investors, told a judge in Manhattan Federal Court on Friday. The sides need seven to 10 more days to iron out some details, Brockett said.
The investors, including a series of Danish pension funds, in 2013 sued the parent companies or units of about a dozen global banks. These banks, as well as data provider Markit Group Ltd., monopolized trading in the instruments and conspired to control the market for information about them, in violation of U.S. antitrust laws, the investors alleged.
Billions in Profits
The banks “made billions of dollars in supracompetitive profits” by taking advantage of “price opacity in the CDS market,” the investors said.
The banks will pay differing amount toward the settlement, according to two people familiar with the deal. The size of each bank’s payment is based on its share of CDS trading, one of the people said.
Ed Canaday, a Markit spokesman, declined to comment on the deal. Goldman Sachs and JPMorgan also declined to comment. Citigroup and HSBC didn’t immediately reply to requests for comment.
The credit default swaps market was worth $16 trillion as of the end of 2014, according to the Bank for International Settlements. The instruments are used as a hedge against the possibility of a borrower default. Although the contracts trade frequently and fluctuate like stocks or bonds, the market is opaque.
Banks’ Denial
In court papers, the banks said there was no antitrust conspiracy. They argued that members of the group supported proposals to increase competition in the CDS market and that there’s little actual demand for exchange trading of the contracts. In September, they were successful in persuading U.S. District Judge Denise Cote to throw out a claim they colluded to monopolize CDS trading.