‘Big US banks plotted to curb rivalry in interest-rate swaps’

Ten major US banks and a couple of trading platforms are facing court action over accusation of colluding to limit competition in the massive market for interest rate swaps.

US media reports said Thursday that a class action lawsuit, filed Wednesday, accuses 10 of Wall Street's biggest banks and two trading platforms of conspiring to curb rivalry in the $320 trillion market.

The class action lawsuit, filed in the US District Court in Manhattan, accuses Goldman Sachs Group, Bank of America Merrill Lynch, JPMorgan Chase, Citigroup, Credit Suisse Group, Barclays, BNP Paribas, UBS, Deutsche Bank, and the Royal Bank of Scotland of colluding to prevent the trading of interest rate swaps on electronic exchanges, like the ones on which stocks are traded, according to Reuters.

As a result, the lawsuit says, banks have successfully prevented new competition from non-banks in the lucrative market for dealing interest rate swaps, the world's most commonly traded derivative.

The banks "have been able to extract billions of dollars in monopoly rents, year after year, from the class members in this case," the lawsuit alleged.

Goldman Sachs, Citigroup, Bank of America, BNP Paribas, Credit Suisse and Royal Bank of Scotland declined to comment, the report said, adding that JP Morgan, Barclays, Deutsche Bank and UBS were not immediately available to comment.

The lawsuit was brought by The Public School Teachers' Pension and Retirement Fund of Chicago, which purchased interest rate swaps from multiple banks to help the fund hedge against interest rate risk on debt.

As a result of the banks' collusion, the Chicago teachers' pension and retirement fund reportedly overpaid for those swaps.

The suit says since at least 2007, the banks "have jointly threatened, boycotted, coerced, and otherwise eliminated any entity or practice that had the potential to bring exchange trading to buyside investors."

"Defendants did this for one simple reason: to preserve an extraordinary profit center," it noted.

The banks masked their collusion by using code-names for joint projects such as "Lily," "Fusion," and "Valkyrie," according to the suit.

The suit also accused broking platforms ICAP and Tradeweb, which control key cogs in the infrastructure of the swaps market, of facilitating the antitrust violations by acting as a forum for collusion and making business decisions on the banks' behalf.

Similar allegations of bank collusion in the market for another type of derivative known as credit default swaps, have been the subject of investigations by the United States Department of Justice and the European Commission, as well as a separate class action lawsuit brought by investors.

In September, twelve banks and two industry groups settled that lawsuit by agreeing to pay $1.87 billion, making it one of the largest antitrust class action lawsuits in US history.

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