STOCK MARKET WATCH -- Friday, 5 July 2013

[Demeter]

7. EU charges banks with blocking exchanges from derivatives market

http://www.reuters.com/article/2013/07/01/us-eu-banks-cds-idUSBRE9600C320130701

EU watchdogs have charged 13 top investment banks with blocking exchanges' access to the lucrative credit derivatives market, hitting the sector with the latest in a growing list of regulatory headaches. Monday's move by the European Commission, which could result in hefty fines, comes as major banks also come under investigation for suspected rigging of lending benchmarks including Euribor and Libor.

The Commission said banks including Citigroup and Goldman Sachs, along with financial data company Markit and the International Swaps and Derivatives Association (ISDA), had barred Deutsche Boerse and the Chicago Mercantile Exchange from the credit default swaps (CDS) business between 2006 and 2009. BEWARE THE MERC! OR ANYTHING OUT OF CHICAGO

CDS, which are worth more than 10 trillion euros ($13 trillion) so far this year, allow an investor to bet on whether a company or country will default on its bonds within a fixed period of time. They were originally over-the-counter (OTC) or non-exchange traded contracts, but the market is shifting to exchanges since regulatory efforts to boost transparency began. The lack of transparency on OTC products has been a key target of regulators following the 2007-2009 crisis. The CDS case is one of several opened by the EU antitrust regulator into financial services since the crisis. Banks and other companies involved could be fined up to 10 percent of their global turnover if found guilty of infringing EU rules.

"It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives," EU Competition Commissioner Joaquin Almunia said in a statement on Monday.

"Over-the-counter trading is not only more expensive for investors than exchange trading, it is also prone to systemic risks."

The Commission said it had sent a statement of objections or charge sheet, which sets out suspected anti-competitive activities, to the companies and bodies concerned...