On 21 October 2014, the European Commission announced that it had reached settlements with a number of international banks that participated in two cartels in the market for financial derivatives based on Swiss franc interest rates. Interest rate derivatives are financial products which are commonly used by financial institutions or companies for managing the risk of interest rate fluctuations. Their value derives from a benchmark interest rate. These benchmarks represent an average of the quotes submitted on a daily basis by a number of banks who are members of a panel.
In the first of the cases, the Commission found that two international banks, RBS and JP Morgan, tried to distort the normal course of the pricing of interest rate derivatives denominated in Swiss francs. According to the Commission, between March 2008 and July 2009, they discussed the future Swiss Franc submissions of one of the banks based on the London interbank offered rate ("LIBOR") and at times exchanged information concerning trading positions and intended prices.
Under the settlement procedure, JP Morgan received a reduction in its fines of 10%. As JP Morgan cooperated in the investigation, a further reduction of 40% was granted under the leniency programme. As a result, the Commission imposed a fine of € 61 million on JP Morgan.
In the second case, the Commission found that four major players in the Swiss franc derivatives market, RBS, UBS, JP Morgan and Crédit Suisse, operated a cartel on bid-ask spreads of Swiss franc interest rate derivatives in the European Economic Area ("EEA"). The so-called "bid-ask spread" is the difference between the price at which a market maker is willing to sell and to buy a given product.
Between May and September 2007, the four banks agreed to quote to all third parties wider, fixed bid-ask spreads on certain categories of short term over-the-counter Swiss franc interest rate derivatives, whilst maintaining narrower spreads for trades amongst themselves. This aimed to prevent other market players from competing on the same terms.
As all four banks agreed to settle they benefitted from a reduction in fines of 10%. For their cooperation in the investigation, UBS and JP Morgan received further reductions under the leniency programme, of 30% and 25% respectively. As a result, UBS was fined € 12.7 million, JP Morgan € 10.5 million, and Credit Suisse € 9.2 million.
In both cases, RBS avoided total fines of around € 115 million as it benefited from immunity for revealing the existence of the two cartels to the Commission.
This is not the first time the Commission has cracked down on anti-competitive conduct in the interest rate derivatives industry. In 2013, the Commission imposed a record total amount of fines on eight banks for participation in a cartel in Euro interest rate derivatives and cartels in Yen interest rate derivatives (see VBB on Competition Law, Volume 2013, No. 11, available at www.vbb.com).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.