United States: SIFMA Urges Second Circuit To Review Decision Expanding Antitrust Liability To LIBOR Rates

SIFMA filed an amicus curiae brief with the Second Circuit Court of Appeals ("Court") asserting that the Court mischaracterized the LIBOR index in its decision in Bank of America Corporation, et al. v. Ellen Gelboim, et al. The Court ruled that sixteen major U.S. banks, including Bank of America, Citigroup, and J.P. Morgan, must face antitrust claims accusing the banks of conspiring to manipulate interbank lending rates.

SIFMA argued that the Court mischaracterized the alleged manipulation of the LIBOR benchmark as price fixing by treating it as a per se violation of the antitrust laws and by "failing to recognize that the LIBOR-setting process was independent of the competition in markets in which the benchmark was used and had no competition-reducing effects."

In its brief, SIFMA argued that "LIBOR is the product of a voluntary, cooperative, and noncompetitive process," and that manipulation of the LIBOR benchmark rate (as opposed to prices based on that rate) should not be treated as price fixing. SIFMA also argued that the Court's ruling permits a plaintiff to plead an antitrust conspiracy claim against every participating entity in a procompetitive benchmark process on the basis of allegations that some participants did not abide by the benchmark or standard-setting rules and guidelines.

According to SIFMA, the expansion of antitrust liability to standing-setting agreements would "undoubtedly chill industry participation in the development of such standards." SIFMA recommended that the Court review its decision.

Commentary / Bob Zwirb

The law and the economics of manipulation have some ground in common with antitrust principles. See, e.g., Craig Pirrong, Commodity Market Manipulation Law: A (Very) Critical Analysis and a Proposed Alternative, 51 Wash. & Lee Law Rev. 945, 951 (1994) (noting the "equation" between manipulation and market power). In other words, the concern that antitrust shares with the law of manipulation when dealing with allegations of price fixing is the creation of prices that do not reflect market forces; i.e., artificial prices. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223 (1940) ("manipulation in its various manifestations is implicitly an artificial stimulus applied to (or at times a brake on) market prices, a force which distorts those prices, a factor which prevents the determination of those prices by free competition alone").

This does not mean that all manipulative conduct raises antitrust concerns. The SIFMA brief explains why such conduct, to the extent that it involves the setting of LIBOR rates as opposed to prices, does not merit antitrust scrutiny.

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