More On Legal & Compliancefrom The Advisor's Professional Library
- Use and Misuse of Social Media Social media is an inexpensive and effective way to communicate with established and prospective clients. Nevertheless, when RIAs utilize social media to promote their advisory practices, they risk compliance problems for their firms.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
Regulators for the European Union (EU) opened investigations into the credit default swap (CDS) market on Friday, looking into whether 16 investment banks and Markit, the CDS market information provider, had abused a dominant market position or colluded in some way.
Reuters reported that the European Commission (EC) said it had opened proceedings against 9 of the 16 banks and also against CDS clearing house ICE Clear Europe, to see whether competitors were injured by preferential tariffs that ICE had provided to those banks. ICE Clear Europe is owned by exchange operator InterContinental Exchange.
The 16 banks under investigation are JP Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo Bank/Wachovia, Credit Agricole and Societe Generale.
Joaquin Almunia, the commissioner in charge of antitrust cases, said in a statement when the action was announced, "CDSs play a useful role for financial markets and for the economy. Recent developments have shown, however, that the trading of this asset class suffers a number of inefficiencies that cannot be solved through regulation alone."
According to the EC, the first investigation will focus on whether the 16 banks provided most of the pricing, index information and other data needed to trade CDSs only to Markit. The EC said that it had information indicating this, and said, "This could be the consequence of collusion between them or an abuse of a possible collective dominance and may have the effect of foreclosing the access to the valuable raw data by other information service providers. If proven, such behaviour would be in violation of EU antitrust rules." If any of the banks is found to be in violation of EU antitrust regulations, it could be fined up to 10% of its revenues.
CDSs are similar to insurance contracts in that they generally pay out when a debtor defaults. This allows a creditor either to hedge risk or, if default is expected, to take a speculative position.
The second investigation will look at agreements between 9 of the 16 banks and ICE Clear Europe. A number of clauses within those agreements, it said, had to do with profitsharing agreements and preferential fees that could encourage the banks to do business only with ICE. The EC said, "The effects of these agreements could be that other clearing houses have difficulties successfully entering the market and that other CDS players have no real choice where to clear their transactions."