JPMorgan Chase and eight other major banks agree to a $46 million settlement to resolve allegations of derivatives market manipulation.
Nine of the world’s largest banks have reached an agreement to resolve a lawsuit accusing them of illegal actions to manipulate the derivatives market. The banks allegedly collaborated secretly to artificially influence a market worth $465.9 trillion.
Lawyers for the investors who filed the lawsuit argue that the banks secretly collaborated for years to keep the “interest rate swap” market inefficient and outdated in order to maximize fees.
An interest rate swap (IRS) is a financial contract that allows two parties to exchange interest payments, typically with one party paying a fixed interest rate and the other a variable rate. It is a financial instrument often used by large companies and investors for hedging, speculation, and arbitrage.
According to the plaintiffs, the interest rate swap market could easily be modernized using fast and efficient digital exchange systems. However, the accused banks allegedly acted to maintain the existence of an old-fashioned and inefficient over-the-counter (OTC) market to have more control and earn more.
The banks allegedly blocked the entry of innovative exchange platforms into the market, forcing investors to operate in the OTC market. By doing so, the defendant banks would have earned billions of dollars in fees, keeping the market inefficient. The banks are accused of eliminating potential competitors that threatened to bring competition and transparency to the interest rate swap market.
Paradoxically, the banks allegedly used some innovative platforms for their own exchanges, excluding investors and the public.
Agreement details
Investors’ lawyers have requested preliminary approval of a $46 million settlement against JPMorgan Chase, Bank of America, Goldman Sachs, BNP Paribas, Citigroup, Deutsche Bank, Morgan Stanley, NatWest, and UBS to end an eight-year antitrust lawsuit. Among the participants in the lawsuit are the Public School Teachers’ Pension and Retirement Fund of Chicago, the Los Angeles County Employees Association, and other institutional investors.
If the settlement is approved by U.S. District Judge Paul Oetken, each bank will pay a settlement of $46 million, although all banks have denied any wrongdoing. In 2022, Credit Suisse, now part of UBS, agreed to pay $25 million to resolve its participation in the lawsuit.
