Wall Street Banks Admit They Rigged CDS Prices Too

Back in June, we noted that a group of investors which included hedge funds, pension funds, university endowments, and others were looking to push forward with a lawsuit that alleged Wall Street had conspired to limit competition in the CDS market. 

Of course the whole case was based on what amounts to tautological reasoning. 

That is, everyone knows that Markit effectively monopolized the CDS market and because Markit was owned by Wall Street, it was self evident that big banks both monopolized and manipulated the market. 

Amusingly, one of the firms that plaintiffs alleged was kept out of the credit default swap market as a result of Wall Street’s absolute stranglehold was Citadel. As we joked a few months back, this meant that by conspiring to keep the Fed’s plunge protection team shut out in 2008, Markit and Wall Street robbed the world of the chance to see what happens when VIX 90 meets HFT, meets CDS market making.

In any event, earlier this month, the Street agreed to settle for nearly $2 billion and today we learn that none other than JP Morgan - whose offshore, taxpayer sponsored hedge fund at CIO seems to have quite a bit of trouble trading CDX without losing billions - is set to bear the brunt of the pain. Here’s Bloomberg

JPMorgan Chase & Co. is set to pay almost a third of a $1.86 billion settlement to resolve accusations that a dozen big banks conspired to limit competition in the credit-default swaps market, according to people briefed on terms of the deal.


JPMorgan is paying $595 million, with the lender’s portion of the accord largely based on the plaintiffs’ measure of market share, said the people, who asked not to be identified because the firms haven’t disclosed how they’re splitting costs. The settlement also enacts reforms making it easier for electronic-trading platforms to enter the CDS market, according to a statement Thursday from the attorneys for the plaintiffs, which include the Los Angeles County Employees Retirement Association.


Morgan Stanley, Barclays Plc and Goldman Sachs Group Inc. are paying about $230 million, $175 million and $164 million, respectively, the people said. Plaintiffs’ lawyersdisclosed the approximate size of the settlement in Manhattan federal court last month, saying they were still ironing out details. They updated the total in Thursday’s statement.


The accord averts a trial following years of litigation by hedge funds, pension funds, university endowments, small banks and other investors, who sued as a group. They alleged that global banks -- along with Markit Group Ltd., a market-information provider in which the banks owned stakes -- conspired to control the information about the multitrillion-dollar credit-default swap market in violation of U.S. antitrust laws.

So yes, even the marks for the financial weapons of mass destruction that helped to destroy the financial universe were (and probably still are) manipulated, meaning that you can't even bet against something without falling victim to big bank rigging. 

Whether or not allowing other players (like Citadel) to enter the market will ultimately be a positive or a negative is anyone's guess, but the bottom line is that at the end of the day, there wasn't anything Wall Street didn't control.

Here is a system that ultimately allows banks to control the pricing for the instruments they use to bet against securities that they themselves create. This is just part and parcel of a never-ending paper wealth creation machine which generates billions in fiat money profits without creating anything in the way of tangible value and before it's all over, this financialization of the US economy will likely end up bringing the world to its knees unless someone, somewhere puts a stop to the madness.