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July 2, 2013

EU Charges Banks Over Derivatives Trading

“European antitrust authorities charged 13 of the world’s largest investment banks on Monday with colluding to prevent the lucrative global business of trading credit derivatives from moving onto regulated exchanges and away from markets controlled by the banks.

“The charges against the banks are another black eye for the multitrillion-dollar market for credit-default swaps, the derivatives that act as insurance against a debt default by a company or a government. These derivatives were blamed for accelerating the spread of the financial crisis after the collapse of Lehman Brothers Inc. in 2008 by allowing banks and other financial institutions to take on huge risks with little oversight from regulators.

“Now, European authorities say the banks, including Goldman Sachs Group, Inc.,  J.P. Morgan Chase & Co., and Deutsche Bank AG,  conspired to prevent trading from moving onto potentially less risky, more-transparent platforms, where their profits would be significantly lower.

“Before the financial crisis erupted, trading CDS became a source of big profits for financial institutions. The banks controlled the data that allowed the market to function and conducted trades “over the counter,” in direct transactions among one another, in ways that bolstered profits and prevented other firms from entering the market, European Union authorities said.”

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Read full Wall Street Journal article here

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