A Manhattan federal judge on Thursday narrowed but refused to dismiss a lawsuit accusing 12 major banks of fixing prices and restraining competition in the multitrillion-dollar market for credit default swaps, violating U.S. antitrust law.
U.S. District Judge Denise Cote dismissed some but not all antitrust claims, as well as claims for damages based on investments made prior to the autumn of 2008. She said the remainder of the litigation may proceed, where damages could reach tens of billions of dollars.
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"We are gratified with the decision," Dan Brockett, a partner at Quinn Emanuel Urquhart & Sullivan representing the plaintiff investors, said in a telephone interview. "It will be a long, protracted battle."
The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc , Credit Suisse Group AG, Deutsche Bank AG , Goldman Sachs Group Inc, HSBC Holdings Plc , JPMorgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG.
Also named as defendants were the International Swaps and Derivatives Association, a trade group, and Markit Ltd, which provides credit derivative pricing services.
Credit default swaps are contracts that let investors buy protection to hedge against the risk that corporate or sovereign debt issuers will not meet their payment obligations.
The size of the CDS market was about $21 trillion at the end of 2013, according to data from the Bank for International Settlements.
The lawsuit was brought on behalf of CDS investors from Jan. 1, 2008, to Dec. 31, 2013.
They claimed that the banks' effective control of the CDS market enabled them to raise transaction prices though increased liquidity and standardization should have driven costs lower.
Cote concluded that the plaintiffs presented enough evidence to suggest a conspiracy.
She said this included evidence that the banks met secretly and agreed to block rival exchanges from entering the market, in part by having arranged with ISDA and Markit not to license necessary information.
Cote dismissed claims arising from before the fall of 2008, citing a lack of evidence of earlier anticompetitive conduct.
The defendants declined to comment or did not immediately respond to requests for comment.
The case is In re: Credit Default Swaps Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-md-02476. (Editing by Matthew Lewis)