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Investors Sue Wall Street, Markit For Conspiring To Monopolize CDS Market
At this point, the list of markets that Wall Street’s largest banks have at one time or another colluded to manipulate is so long that it’s easier to just list the markets they haven’t conspired to fix. In case that isn’t clear enough, allow us to spell it out: the reason it’s so easy to make a list of markets that have escaped the influence of big bank collusion is because there are no markets on that list.
And while the entire world is now, with the benefit of hindsight, able to see how a setup that allowed rate traders to communicate with benchmark submitters might have been a recipe for disaster, what should be even more obvious is that allowing a firm controlled by Wall Street’s largest banks to effectively monopolize the market for the derivatives that not only played a rather large role in the financial crisis but also serve as the go-to instrument for hedging tail risk is likely also a bad idea and could very well lead to manipulation and all sorts of other nefarious things like, for instance, attempts to create and preserve a lucrative monopoly by adopting anti-competitive practices. This is precisely what looks to have occurred in the CDS market and although a DoJ probe launched in 2009 has predictably gone nowhere, investors are now taking matters into their own hands. WSJ has more:
Allegations that banks and two swaps industry groups colluded against would-be competitors in the credit-derivatives market are rippling through the investment world again.
Three swaps participants, BlueMountain Capital Management LLC, Citadel LLC and Pacific Investment Management Co., or Pimco, received subpoenas in recent months under an investor lawsuit alleging anticompetitive practices by the banks and industry groups, according to people familiar with the matter. No wrongdoing is alleged on the part of the firms receiving the subpoenas.
The investor lawsuit, brought in 2014 by a series of retirement and pension funds in a federal district court in New York, accuses 12 banks, data provider Markit Group Ltd. and the International Swaps and Derivatives Association, a trade group, of conspiring to block competing providers and exchange trading in the credit-default-swaps market.
The subpoenas mark the latest attempt by investors to wring damages out of banks dealing in credit-default swaps.
Chicago-based Citadel was subpoenaed because of the firm’s attempt to launch a trading platform for credit swaps called “CMDX” with CME Group Inc. in 2008, the people said. The lawsuit alleges that effort was thwarted by the defendant banks in the case.
The Justice Department confirmed in 2009 that it had opened a probe into the trading practices and clearing and information services supporting credit derivatives, but hasn’t brought any charges.
Depository Trust & Clearing Corp., a Wall Street entity controlled by big banks, also was subpoenaed in the investor lawsuit, some of the people familiar said. It isn’t a defendant in the suit.
The defendant banks are: Bank of America Corp., Barclays PLC, BNP Paribas SA, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings PLC, J.P. Morgan Chase & Co., Morgan Stanley, Royal Bank of Scotland Group PLC and UBS AG.
Before anyone goes and gets upset about the fact that Markit and Wall Street apparently conspired to keep Citadel from creating its own CDS platform in the middle of the crisis — which means the bankers robbed the world of the chance to see what happens when VIX 90 meets HFT meets CDS market making — rest easy because as WSJ reported just two days ago, the firm is now set to become the top US IR swaps dealer:
Citadel LLC has emerged as a top dealer in U.S. interest-rate swaps, becoming one of the first nonbank firms to step into a breach created by postcrisis rules overhauling trading in those derivatives.
The Chicago hedge-fund firm’s Citadel Securities unit has the largest market share by number of trades and the third largest by dollar volume in the second quarter, according to documents reviewed by The Wall Street Journal showing the firm’s rankings on a swaps platform operated by Bloomberg LP. As of the first quarter, the firm said it was No. 3 by number of trades and No. 4 by dollar volume. The platform covers nearly half of all customer trades in the derivatives, according to swaps data tracker Clarus Financial Technology.
The shift is helping to open up a market that has long been dominated by banks that are reassessing trading activities in response to new rules, including the 2010 Dodd-Frank financial-overhaul law. Firms like Citadel Securities can’t match banks’ scale but can compete with lower operating costs and strong technology and risk-management systems, traders said.
“They’re really trying to be pretty aggressive,” said John Angelos, director of institutional marketing at Chicago exchange CBOE Holdings Inc., which wants to recruit the Citadel unit as a market maker for its contracts that allow clients to bet on volatility in Treasurys.
Executives at Citadel Securities have been crisscrossing the country on a campaign to win clients for the new swaps venture. Paul Hamill, global head of fixed income, currencies and commodities in Chicago, said he has visited 12 cities in the U.S. since joining the firm in January and has held meetings with more than 90 clients in a little over four months.
His pitch: The market-making arm of the $26 billion firm founded by Kenneth Griffin can offer lower prices.
Yes, "lower prices", which sounds a lot like what the HFT lobby says when critics ask what benefit investors derive from allowing algos to sit between buyers and sellers and extract what amounts to a tax on every trade.
So, while we wish the Los Angeles County Employees Retirement Association, Salix Capital, Value Recovery Fund, Delta Institutional LP, Delta Onshore Ltd., Delta Offshore Ltd., Delta Pleiades LP, Essex Regional Retirement System, and Unipension Fondsmaeglerselskab the best of luck in their attempt to use the legal system to open the CDS market to the likes of Citadel, we would advise the plaintiffs to be careful what they wish for.
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Unpossible there's riggedness.
Soooooo......... bidness as usual. Got it. Can we talk about Greece now? Because you know, we haven't heard any news for ten minutes.
Greece is the sideshow. Germany is the real deal.
Besides it is fun to watch the European Union fracture...which I am all for.
I want to see them sweat.
More specifically, Greece is the instrument to force Germany into MOAR QE, with the gun at Deutchebank's head.
If there is increased volatility in the CDS Market and the HFT Traders, the quants, can inadvertently cause a Flash Crash...
Hey...Who am I to stand in their way? What can go wrong?
Crash the Derivatives Market and bring this whole damned game to a close. Detonate the Weapon f Financial Mass Destruction which will leave just rubble and ashes behind. That would be the best event to happen.
We need to start anew anyway.
I encourage this. Seriously.
You know damn well that, barring a real world war, the bankers and financiers will come to some agreement on all that CDS bullshit. my guess is that it will simply dissappear and once again, 'poof' their debt is gone, while yours will remain...
barring a real world war
You know that your unbridled Optimism for a better future is just abject denial....
Being optimistic is certainly better than the alternative. One can be optimistic and prepared at the same time.
Maybe Hollande will sue the NSA for spying on him.
We should take Obammy's Nobel away and give it to Assange of Wikileaks; and the next one to Edward Snowden.
Keep those whistles blowing!
Will someone just park a guillotine outside 33 Liberty St.
more conspiracy theories becoming conspiracy facts...
same as it ever was...
imagine the horror of the German Bankers when they realized the wealthy greek looters pushing bankruptcy could "short" the creditors and profit off shore on their own default.
A boy named SUE.
"it’s easier to just list the markets they haven’t yet been definitively proven to have conspired to fix" - fixed that for you...
on a related note my hauki from tiabbi's contest a few yrs ago:
surveying empire
for no more markets to rig
jamie dimon wept...
Coins, bars and jewelry hardly find buyers, the price of gold falls. Only the Germans are faithful to the precious metal.
This "genetic code" make Germans into a nation of savers gold because the precious promise safety and value retention. The dimensions are breathtaking: were sold in Germany in 2014 gold coins and bars with a total weight of 101 tons, it was in France only two tons.
http://www.welt.de/finanzen/article142990173/Die-Nibelungentreue-der-Deu...
Only in America !