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Business

EU targets investment banks over derivatives trading

The European Commission has given a number of investment banks a month to respond to assumptions that the lenders colluded in derivatives trading, thus hampering rivals. Hefty fines may be imposed.

The cases under investigation involved the trading of credit default swaps (CDSs), a type of financial insurance against a specific economic event such as government defaulting. The instrument had been identified by some analysts as one that exacerbated the eurozone's current debt crisis.

The EU executive said Monday it had informed 13 banks, including Deutsche Bank, Citigroup, Goldman Sachs and JPMorgan as well as the industry association for derivatives of its objections.

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It wrote it believed the lenders in question had limited their competitors to over-the-counter trading of credit derivatives by colluding in a bid to block attempts by exchanges to trade and offer more transparent prices for financial products.

Ratcheting up the pressure

Brussels said the illegal activity allegedly occurred between 2006 and 2009 when Deutsche Börse stock market and the Chicago Mercantile Exchange were told they could only carry out over-the-counter trading (OTC) rather than the less profitable exchange trading.

"The European Commission takes the preliminary view that the banks acted collectively to shut out exchanges from the market, because they feared their trading would have reduced their revenues," the EU's executive said in a statement.

If the banks are found guilty, they could face fines of up to 10 percent of their annual global turnover. They now have 30 days to respond to the allegations before Brussels steps into action again.

hg/mz (dpa, AP)

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