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(Rewrites first paragraph, adds context, background, no commentfrom Credit Suisse, Goldman and others)
By Foo Yun Chee
BRUSSELS, July 1 (Reuters) - EU watchdogs have charged 13top investment banks with blocking exchanges' access to thelucrative credit derivatives market, hitting the sector with thelatest in a growing list of regulatory headaches.
Monday's move by the European Commission, which could resultin hefty fines, comes as major banks also come underinvestigation for suspected rigging of lending benchmarksincluding Euribor and Libor.
The Commission said banks including Citigroup andGoldman Sachs, along with financial data company Markitand the International Swaps and Derivatives Association (ISDA),had barred Deutsche Boerse and the Chicago MercantileExchange from the credit default swaps (CDS) businessbetween 2006 and 2009.
CDS, which are worth more than 10 trillion euros ($13trillion) so far this year, allow an investor to bet on whethera company or country will default on its bonds within a fixedperiod of time. They were originally over-the-counter (OTC) ornon-exchange traded contracts, but the market is shifting toexchanges since regulatory efforts to boost transparency began.
The lack of transparency on OTC products has been a keytarget of regulators following the 2007-2009 crisis.
The CDS case is one of several opened by the EU antitrustregulator into financial services since the crisis. Banks andother companies involved could be fined up to 10 percent oftheir global turnover if found guilty of infringing EU rules.
"It would be unacceptable if banks collectively blockedexchanges to protect their revenues from over-the-countertrading of credit derivatives," EU Competition CommissionerJoaquin Almunia said in a statement on Monday.
"Over-the-counter trading is not only more expensive forinvestors than exchange trading, it is also prone to systemicrisks."
The Commission said it had sent a statement of objections orcharge sheet, which sets out suspected anti-competitiveactivities, to the companies and bodies concerned.
OTHER BANKS
The accused can request a hearing to defend themselvesbefore Commission officials and antitrust experts from nationalantitrust authorities across Europe ahead of the EU regulator'sdecision. While the Commission can take up to several years toreach a decision in such matters, it may issue its finding inthis case before Almunia leaves office towards the end of nextyear.
The other banks charged are Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas,Morgan Stanley, Credit Suisse, Deutsche Bank, HSBC, JP Morgan, UBS, andRBS.
The ISDA, a trade body which represents firms involved inthe derivatives market, said it had received the Commission'scharge sheet.
"As previously stated, ISDA is confident that it has actedproperly at all times and has not infringed EU competitionrules. ISDA is co-operating fully with regulatory authorities,"it said in a statement.
UBS, Deutsche Bank, JP Morgan, HSBC, Barclays, CreditSuisse, Goldman Sachs, Citigroup, BNP Paribas and RBS declinedto comment, while the other banks were not immediately availablefor comment.
Deutsche Boerse and the CME also had no comment.
Markit, which started out as a provider of valuations fordealers and investors in over-the-counter credit derivatives in2001 before developing a dominant position in data and services,including credit indexes which the whole market uses, had noimmediate comment.
MORE TRANSPARENT
The antitrust case comes amid efforts by EU financial marketregulators to push more derivatives trading onto exchanges,aiming making the opaque market more transparent.
Several exchanges have tried and failed to break into thecredit derivatives business. Deutsche Boerse subsidiary Eurexmade a move in 2007, while LIFFE did so the following year, butneither made much progress with market liquidity remainingfirmly off-exchange.
However, the IntercontinentalExchange (ICE) - adealer-backed platform whose top shareholders include Goldman,JP Morgan and Wells Fargo - has for instance clearedmore than $30 trillion of gross notional in credit default swapssince it began offering the service in March 2009.
Almunia said some of the banks in the CDS case were alsoinvolved in separate investigations into suspected rigging oflending benchmarks Euribor and Libor, but did not identify them.Barclays, UBS and RBS have already been fined for manipulatingrates.
"We are trying to follow the Article 9 route. We hope we areready to adopt a decision towards the end of the year," EUCompetition Commissioner Joaquin Almunia told a news briefing,referring to a procedure where companies can get a 10 percentcut in fines in return for admitting wrongdoing.
He is also investigating suspected manipulation of theJapanese benchmark Tibor and the Swiss franc.
Such rates are used as references for hundreds of trillionsof dollars' worth of financial contracts, ranging from creditcards to complicated derivatives deals.($1 = 0.7693 euros) (Additional reporting by Steve Slater, Laura Noonan, AlexChambers and Helen Bartholomew in London, with John O'Donnelland Kathrin Jones in Frankfurt, Martin De Sa'Pinto in Zurich,and Christian Plumb and Matthias Blamont in Paris; Editing byAdrian Croft and David Holmes)
