The European Commission’s CDS Investigations: How to Balance Stability and Competition in the Financial Sector?

Thibault Balthazar, Bruno Lebrun, Jul 28, 2011

On April 29, 2011, the European Commission (the “Commission”) announced two antitrust investigations on the Credit Default Swaps market (the “CDS market”) relating to potential breaches of Articles 101 and 102 TFEU.

The first investigation concerns 16 banks active on the CDS market that arguably reserve their transaction data to Markit, the British leading information provider of CDS data. The second investigation scrutinizes a series of agreements between ICE, a clearing house, and nine of the above 16 banks that may incentivize said banks to use exclusively ICE as a clearing company (through, for instance, preferential fees and profit sharing agreements).

Such investigations in the financial industry are rare and emphasize the current focus of regulators on this industry in the context of the financial crisis and the consequent reshuffle of the financial regulatory framework. As detailed below, these investigations may, on the one hand, participate in the redesign of the regulation of financial services, and, on the other hand, may contribute to test the balance between competition and the need for stability inherent to the banking sector.