Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Cartel on bid-ask spreads charged on Swiss franc interest rate derivatives; EC fines four major banks €32.3M, (Oct 21, 2014)

By Linda O’Brien, J.D., LL.M.

The EC has found that four international banks—The Royal Bank of Scotland (RBS), UBS, JP Morgan and Crédit Suisse—operated a cartel on bid-ask spreads of Swiss franc interest rate derivatives in the European Economic Area (EEA). The Commission announced today that it has imposed fines worth a total of €32,355,000. RBS received immunity from fines for revealing the existence of the cartel to the Commission. UBS and JPMorgan received reductions of their respective fines for cooperating with the investigation under the Commission's 2006 Leniency Notice. All four banks received a 10 percent reduction for agreeing to settle the case.

Today's second decision in the Swiss franc interest rate derivatives sector marks the 16th settlement decision since the introduction of the settlement procedure for cartels in June 2008.

Interest rate derivatives are financial products that are used by banks or companies for managing the risk of interest rate fluctuations. These products are traded worldwide and play a key role in the global economy. This case concerns certain interest rate derivatives in the Swiss Franc currency.

The "bid-ask spread" refers to the difference between the bid price and the ask quoted by a market maker (respectively the price at which the market maker is willing to buy and the price at which it is willing to sell a particular contract). Market makers hold themselves out as able and willing to buy or to sell financial products. At the time of the infringement, the four participants were market makers in short term over-the-counter Swiss franc interest rate derivatives.

The Commission's investigation disclosed that between May and September 2007, RBS, UBS, JP Morgan and Crédit Suisse agreed to quote to all third parties wider, fixed bid-ask spreads on certain categories of short term over-the-counter Swiss franc interest rate derivatives, while maintaining narrower spreads for trades amongst themselves. The aim of the agreement was to lower the parties' own transaction costs and maintain liquidity between them whilst seeking to impose wider spreads on third parties. Another objective of the collusion was to prevent other market players from competing on the same terms as these four major players in the Swiss franc derivatives market.

In a statement issued today, Commission Vice-President Joaquín Almunia, in charge of competition policy, said: “Unlike in previous cartels we found in the financial sector, this one did not involve any collusion on a benchmark. Rather, the four banks agreed on an element of the price of certain financial derivatives. This way, the banks involved could flout the market at their competitors' expense. Cartels in the financial sector, whatever form they take, will not be tolerated."

Almunia stressed that acting against financial cartels was one of the Commission’s top priorities and reminded financial institutions that they must be aware that no violation of antitrust rules will be tolerated by the EC.

Companies: The Royal Bank of Scotland; UBS AG; JPMorgan Chase; Crédit Suisse

News: Antitrust IndustryNewsTrends