USDOJ investigation into credit-default swaps (CDS)


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Mar 21, 2008
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"The Justice Department's investigation into credit-default swaps is homing in on the role of Markit Group Holdings Ltd. and its ownership by a group of banks that control a large amount of pricing information in the $26 trillion market.

In recent weeks, the Justice Department's antitrust division contacted Markit and several large banks that own the company, seeking information on the banks' ownership of Markit and what data they provide to the company, according to people familiar with the matter.

The interest of the Justice Department reflects the growth of credit derivatives from an obscure corner of the credit markets into a world-wide business that is drawing increased scrutiny. As the market grew, Markit became the dominant provider of pricing and information.

The probe dovetails with a push by the Obama administration for more transparency in the market, which was blamed for helping deepen the credit crisis last year. Credit-default swaps are effectively insurance contracts designed to protect investors against losses on bonds or loans. The contracts are now more often used as a tool to speculate on the health of an issuer.

Investors and competitors have groused about the dominance of Markit and its owners, which comprise the top dealers in the credit-derivatives markets, including J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Credit Suisse Group. They complain that Markit has access to key pricing information that is handed to it by banks, preventing them from producing competing products. As well, Markit runs key indexes that now account for much of the trading in the market. Other companies are able to utilize banks' credit-default swaps data for product sales.

They include the ABX indexes that track subprime mortgages, and CDX index of corporate credit-default swaps, both of which became a fixation for many as markets cratered last year."


U.S. Tightens Its Derivatives Vise -

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