Illinois State Universities Retirement System, Champaign, accused J.P. Morgan Chase, Goldman Sachs, Bank of America, and 11 other global banking institutions and dealer groups for monopolizing the credit default swap markets, inflating transaction costs and obstructing formation of alternative CDS platforms, according to a lawsuit filed in U.S. District Court in New York.
From the beginning of 2008 to the present, the defendants “restrained competition” and “manipulated the bid-ask spread on CDS transactions” and “prevented the widespread dissemination of public pricing information on CDS,” the complaint states.
The suit, filed Nov. 8 by the $15.6 billion Illinois SURS, seeks treble damages from the harm it claims was caused by the alleged illegal actions of the defendants, although it doesn’t specify any amount of damages or CDS transactions.
“By keeping information relating to CDS and their bid-ask spreads nebulous and off the exchanges, defendants were able to conceal the difference between what they were willing to buy CDS protection on the spot for and what they were willing to sell it for,” the complaint states. “The effect of defendants’ coordinated and manipulative activities has been to decrease competition in the CDS market among defendants and as a result, defendants’ customers were forced to pay inflated bid-ask spreads, which cushion the profits of the defendants.”
The suit contends the banks named as defendants collectively control more than 90% of the $13 trillion CDS trading in the U.S. market. The worldwide CDS market, including the U.S. share, is currently $25 trillion, the suit states.
Other defendants are Barclays Bank, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, International Swaps and Derivatives Association, and Markit Group.
The suit, which seeks class-action status, was assigned to Judge Denise L. Cote.
Law firm Robbins Geller Rudman & Dowd is representing SURS in the case.
William E. Mabe, SURS executive director, couldn’t be reached for comment.
Michael DuVally, Goldman Sachs spokesman, said officials declined to comment.
Joe Evangelisti and T.J. Crawford, spokesmen for J.P. Morgan Chase and Bank of America, respectively, couldn’t be reached for comment.