US Plans Will Not Penalise Banks in Swaps Investigation

The US Department of Justice is not planning to hit some of the world's biggest banks with penalties - even if they tried to prevent competitors entering the credit default swaps market.

According to unnamed sources cited by the Wall Street Journal, the DoJ is close to wrapping up its investigation into some of the world's biggest banks after raking over thousands of pieces of CDS-related trading data, messages, emails and documents.

The sources say that the DoJ is not planning to hit the banks with financial penalties because it believes the alleged anti-competitive conduct have been remedied.

A CDS is a contract allowing investors to reduce or eliminate the risk that a borrower will default on a loan or a bond.

The multi-trillion dollar CDS sector is usually traded on the over-the-counter (OTC) market, which means that contracts are negotiated privately and bilaterally rather than traded on exchanges.

The DoJ probe was said to have focused on a small number of CDS traders who conducted most of their business over the phone rather than via computer technology that records and distributes prices.

EU Investigations

The EU is investigating over a dozen banks over the same allegations.

The banks under investigation by the Commission are Bank of America Merrill Lynch, Barclays, Bear Stearns (now part of JP Morgan), BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, UBS and the Royal Bank of Scotland.

The EU suspects the banks involved may "may have breached EU antitrust rules that prohibit anticompetitive agreements" in the CDS market.

Two bodies connected to them, financial data firm Markit and the International Swaps and Derivatives Associations (Isda), have also been dragged into the probe, which is covering a time period of 2006 to 2009.