Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Banks boycotted interest rate swaps exchange-style trading, pension fund asserts, (May 6, 2016)

By Greg Hammond, J.D.

A group of major banks in the United States have conspired to jointly boycott and otherwise exclude from the marketplace entities that would have introduced competition on bid-ask spreads for buy-side interest rate swaps business, including but not limited to all-to-all exchanges, according to a complaint filed by the Policemen’s Annuity & Benefit Fund of Chicago in the federal district court in Chicago (Policemen’s Annuity & Benefit Fund of Chicago v. Bank of America Corp., May 4, 2016).

Interest rate swaps (IRS) are a type of financial derivative used to manage interest rate risk and/or speculate on the direction of rates. Defendant banks Bank of America, Barclays, BNPP, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, RBS, and UBS are the primary incumbent dealers of IRS in the United States and, collectively, dominate the market, the complaint asserts. Historically, IRS transactions were executed on an over-the-counter basis—in direct bilateral dealings between a bank and a buy-side entity. Over time, however, many financial products and derivatives have migrated from over-the-counter to exchange-style execution.

Policemen’s Annuity claims that the defendant banks forestalled the development of exchange-style trading for IRS by using their market power, collectively, to exclude rivals and new entrants from the marketplace. Specifically, the banks allegedly boycotted and collusively targeted a new series of new electronic trading platforms that would have allowed direct and/or anonymous comparison-shopping and IRS execution for the buy-side. This kind of market evolution to an exchange-like platform for executing standardized IRS transactions would purportedly have delivered significant efficiency benefits and better prices for buy-side customers.

The banks’ allegedly unlawful conduct included: (1) using group boycotts and anticompetitive agreements to prevent the development and rollout of exchange-like trading platforms open to the buy-side; (2) using group boycotts and other anticompetitive agreements to prevent existing inter-dealer electronic trading platforms from making their systems available to buy-side users; and (3) retaliating against end-user customers that attempted to circumvent the traditional over-the-counter trading system.

The complaint asserts two claims for conspiracy to restrain trade in violation of Section 1 of the Sherman Act and unjust enrichment. Policemen’s Annuity requests that the court certify the lawsuit as a class action; permanently enjoin and restrain the banks from continuing and maintaining the alleged conspiracy; and award trebled damages plus interest, monetary losses suffered by the plaintiff and class members, and costs of suit, including attorney fees and expenses.

Attorneys: George A. Zelcs and Stephen M. Tillery (Korein Tillery, LLC), Christopher M. Burke and David R. Scott (Scott+Scott, Attorneys at Law, LLP), and Louis F. Burke (Louis F. Burke PC) for Policemen’s Annuity & Benefit Fund of Chicago.

Companies: Policemen’s Annuity & Benefit Fund of Chicago; Bank of America Corp.

News: Antitrust IllinoisNews