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(Corrects 11th paragraph to show that Tradeweb is majorityowned by Thomson Reuters, not 40 percent owned)
By Mike Kentz
NEW YORK, Nov 25 (IFR/Reuters) - A class action lawsuit,filed Wednesday, accuses 10 of Wall Street's biggest banks andtwo trading platforms of conspiring to limit competition in theUS$320 trillion market for interest rate swaps.
The class action lawsuit, filed in U.S. District Court inManhattan, accuses Goldman Sachs, Bank of America Merrill Lynch,JPMorgan Chase, Citigroup, Credit Suisse, Barclays, BNP Paribas,UBS, Deutsche Bank, and the Royal Bank of Scotland of colludingto prevent the trading of interest rate swaps on electronicexchanges, like the ones on which stocks are traded.
As a result, the lawsuit alleges, banks have successfullyprevented new competition from non-banks in the lucrative marketfor dealing interest rate swaps, the world's most commonlytraded derivative.
The banks "have been able to extract billions of dollars inmonopoly rents, year after year, from the class members in thiscase," the lawsuit alleged.
The suit was brought by The Public School Teachers' Pensionand Retirement Fund of Chicago, which purchased interest rateswaps from multiple banks to help the fund hedge againstinterest rate risk on debt. The plaintiffs are represented bythe law firm of Quinn, Emanuel, Urquhart, & Sullivan LLP, whichhas taken the lead in a string of antitrust suits against banks.
As a result of the banks' collusion, the suit alleges, theChicago teachers' pension and retirement fund overpaid for thoseswaps.
The suit alleged that since at least 2007 the banks "havejointly threatened, boycotted, coerced, and otherwise eliminatedany entity or practice that had the potential to bring exchangetrading to buyside investors."
"Defendants did this for one simple reason: to preserve anextraordinary profit center," the lawsuit said.
The banks masked their collusion by using code-names forjoint projects such as "Lily", "Fusion," and "Valkyrie,"according to the suit.
The suit also accused broking platforms ICAP and Tradeweb, which control key cogs in the infrastructure of the swapsmarket, of facilitating the antitrust violations by acting as aforum for collusion and making business decisions on the banks'behalf.
Nine of the ten defendant banks own equity stakes inTradeweb and hold positions on the company's board andgovernance committees. Tradeweb is majority owned by ThomsonReuters. Thomson Reuters is not named as a defendant in thesuit.
Bankers used those positions to control the direction of theTradeweb and collectively blocked the development of moreinvestor friendly swaps exchanges by firms such as the CMEGroup, TrueEX, Javelin Capital Markets, and TeraExchange,according to the suit.
"During the time period relevant here, Tradeweb board andgovernance committees were organised specifically for thepurpose of protecting the 'dealer community' from the growth ofexchange trading," reads the suit.
Similar allegations of bank collusion in the market foranother type of derivative known as credit default swaps, havebeen the subject of investigations by the United StatesDepartment of Justice and the European Commission, as well as aseparate class action lawsuit brought by investors.
In September, twelve banks and two industry groups settledthat lawsuit by agreeing to pay $1.87 billion, making it one ofthe largest antitrust class action lawsuits in U.S. history. (Editing by Charles Levinson)
