Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC approves ISDA, Markit commitments in credit derivatives trading dispute, (Jul 20, 2016)
Organizations Mentioned:International Swaps and Derivatives Association | International Swaps and Derivatives Association Inc. | Markit Ltd.
By Greg Hammond, J.D.
The European Commission (EC) has accepted commitments offered by the International Swaps and Derivatives Association Inc. (ISDA) and information service provider Markit, quelling the EC’s competition concerns regarding the licensing of intellectual property needed to offer trading services on the market for credit default swaps.
Credit default swaps—or CDS—are derivative contracts that are designed to transfer the credit risk, or risk of default, linked to a debt obligation. The EC preliminarily determined that ISDA did not license rights to the "Final Price" indices, which is used industry-wide to price CDS after the default of a reference entity. Similarly, the EC believed that Markit did not license CDS indices to attract liquidity, such as its iTraxx and CDX indices. The failure to license these inputs for exchange trading may have blocked or delayed the emergence of exchange trading, possibly in violation of EU antitrust rules, the EC asserted.
Both ISDA and Market previously offered commitments to the EC. After market testing the commitments, Markit proposed minor modifications and clarifications. Under the commitments: (1) both ISDA and Markit will exclude CDS dealers from taking individual licensing decisions and prevent them from influencing such decisions; (2) ISDA will license its rights in the Final Price for the exchange trading on fair, reasonable, and non-discriminatory or "FRAND" terms; and (3) Markit will license its rights in the iTraxx and CDX indices on FRAND terms for exchange traded financial products based on the indices it owns.
"Todays’ decisions ensure that all trading venues can benefit from fair, reasonable and non-discriminatory access to data and intellectual property owned by ISDA and Markit," EC Commissioner in charge of competition policy, Margrethe Vestager stated. "This will translate into more choice and lower transaction costs for investors and will also increase market stability."
Companies: International Swaps and Derivatives Association Inc.; Markit Ltd.
News: Antitrust