Antitrust Law Daily Wrap Up, TOP STORY: EC settles cartel case involving Swiss franc LIBOR, imposes €61.6M fine on JPMorgan, (Oct 21, 2014)

By Linda O’Brien, J.D., LL.M.

The EC has found that two international banks—the Royal Bank of Scotland (RBS) and JP Morgan—participated in an illegal bilateral cartel aimed at influencing the Swiss franc Libor benchmark interest rate between March 2008 and July 2009 in violation of European Union antitrust rules, the EC announced today. The banks agreed to settle the case with the EC under a simplified procedure. RBS received immunity from fines for revealing the existence of the cartel to the Commission. JPMorgan was fined €61,676,000 (US $78,480,183), after benefitting from a reduction of its fine for its cooperation with the investigation under the Commission's 2006 Leniency Notice, as well as a 10 percent reduction for agreeing to settle the case.

Interest rate derivatives (e.g., forward rate agreements, swaps, futures, options) 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. They derive their value from the level of a benchmark interest rate, such as the London interbank offered rate (LIBOR) – which is used for various currencies including the Swiss franc (CHF). This benchmark reflects an average of the quotes submitted daily by a number of banks who are members of a panel. It is intended to reflect the cost of interbank lending in Swiss franc and serves as a basis for various financial derivatives. The levels of the benchmark rate may affect either the cash flows that a bank receives from a counterparty, or the cash flow it needs to pay to the counterparty under interest rate derivatives contracts.

Between March 2008 and July 2009, RBS and JP Morgan tried to distort the normal course of the pricing of interest rate derivatives denominated in Swiss franc. They discussed the future Swiss Franc Libor rate submissions of one of the banks and at times exchanged information concerning trading positions and intended prices. The infringement covered the whole of the European Economic Area (EEA).

In December 2013, the Commission already fined several banks for their participation in cartels in Euro and Yen interest rate derivatives.

“This is the third case where the Commission finds a cartel related to the manipulation of a financial benchmark, in which major banks colluded instead of competing with each other,” Vice-President Joaquín Almunia, in charge of competition policy, said. “Our economy needs a healthy, transparent, well-functioning financial sector. This is why antitrust rules in this sector must be strictly enforced."

Companies: The Royal Bank of Scotland; JPMorgan Chase

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