“Investment banks’ lucrative role as the middlemen of derivatives markets have long been under regulatory attack. But Brussels is not only rewriting rules for future trading and clearing; it could now punish banks for their past dominance.

“On Monday the European Commission accused 13 of the world’s top investment banks of illegally sustaining their grip over the credit default swap market by muscling out rival exchanges which threatened their indispensable and highly profitable position as dealers.

“The almost 400-page charge sheet is the latest front in a transatlantic regulatory assault against ‘over-the-counter’ derivatives markets such as CDS, where banks build customised insurance-like products for clients, doing deals privately away from exchanges and generating big revenue streams.

“The allegations from 2006-2009 are not yet proven. But Brussels alleges that collusion did more than simply inflate costs or reduce choice for investors in CDS. It also potentially left the world’s financial system more vulnerable to shocks and amplified the fallout from the collapse of Lehman Brothers.”

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