TeraExchange and Javelin preparing to bring class action lawsuits against 12 major banks

Their lawsuit revolves around the provisions in the Dodd-Frank Act which aims to bring transparency in the trading of interest rates swaps.

In a development that could have a significant impact on major banks, two lone trading start-ups are set to file an antitrust case against major banks alleging that they conspired to block customers from using their platform to trade interest rates swaps.

As per sources familiar with the matter, Javelin Capital Markets and TeraExchange have alleged that major banks have threatened to cut off customers who have tried to trade using their platform.  As per a source, TeraExchange could file the suit anytime today.

Sources have revealed the banks that have been named in TeraExchange’s suit includes, Morgan Stanley, Deutsche Bank, Bank of America Merrill Lynch, BNP Paribas, HSBC, Barclays, JP Morgan, Citigroup, Royal Bank of Scotland, Credit Suisse, UBS, and Goldman Sachs.

The name of the banks in Javelin’s suit are not yet known.

These allegations by TeraExchange and Javelin mirrors a lawsuit by a Chicago pension fund, filed last year, against the same 12 banks, of trying to keep customers away from interest rate trading platforms, such as Javelin’s and Tera’s and other such platforms.

Tera’s suit alleges that these banks have effectively more trading in derivatives more expensive for investors.

Both Tera and Javelin have declined comment. Thomas Ogden, a partner at Wollmuth Maher & Deutsch, a law firm, who are preparing the lawsuits, has also declined comment.

In the wake of the 2008 financial crisis, the 2010 Dodd-Frank Act has made major headways into bringing a degree of fairness in trading interest rate swaps.

During trading swaps, banks typically make a fat profit since they are the one who sets the pricing on the contracts and since all sales of the contracts must compulsorily be routed through them.

Thanks to provisions in the Dodd-Frank Act has given birth to platforms that provide a so-called all-to-all platforms, which essentially removes the very necessity for the involvement of banks, thus depriving them of easy profits.

Such trading platforms have however struggled to bloom in the fiercely competitive market and as per Tera and Javelin much of this can be attributed to the collusion of these major banks.

Last September, these 12 banks shelled out $1.87 billion in settlement charges, the third largest cash settlement in the history of U.S. class action antitrust lawsuits, for anti-competitive behaviour in the trading of credit default swaps, (CDS) without admitting any guilt.

As per Dan Brockett, the lead lawyer in the suit filed by the Public School Teachers’ Pension and Retirement Fund of Chicago, both companies are telling the truth.

“The fact that Tera is going to file its own case underscores that what we were saying is accurate,” said Brockett, partner at Quinn Emanuel Urquhart & Sullivan.

He went on to add, “The banks executed a group boycott to prevent exchanges that offer all-to-all trading. Their complaint seems entirely consistent with ours.”

Categories: Regulations & Legal, Strategy


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