Watched an informative documentary on the Madoff ponzi scheme yesterday from PBS and did not realize how far reaching it was - now that the markets may be turning perhaps more dark areas of the system will see some light of day. I was wondering what people know about Markit and thoughts if any about bank and fund activity in this area.

http://www.markit.com/en/about/about-Mar....

http://www.bloomberg.com/apps/news?pid=n....

http://www.ft.com/cms/s/0/f069fae0-87b0-....

I smell blood in the air, I have doubt for a long time on markit "real" role

Antitrust: Commission probes Credit Default Swaps market

The European Commission has opened two antitrust investigations concerning the Credit Default Swaps market. CDS are financial instruments meant to protect investors in the event a company or State they have invested in default on their payments. They are also used as speculative tools. In the first case, the Commission will examine whether 16 investment banks and Markit, the leading provider of financial information in the CDS market, have colluded and/or may hold and abuse a dominant position in order to control the financial information on CDS. If proven such behaviour would be a violation of EU antitrust rules. In the second case, the Commission opened proceedings against 9 of the banks and ICE Clear Europe, the leading clearing house for CDS. Here, the Commission will investigate in particular whether the preferential tariffs granted by ICE to the 9 banks have the effect of locking them in the ICE system to the detriment of competitors.

"CDS 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. We are therefore opening two new cases to improve market transparency and fairness in the CDS market. The first case will investigate privileged access to CDS transaction data by Markit, an information service provider. The second will examine the existence of preferential treatment by ICE Clear, a CDS clearing platform, of some well established banks who themselves promote this platform at the expense of others. Lack of transparency in markets can lead to abusive behaviour and facilitate violations of competition rules and the Commission should react accordingly. I hope our investigation will contribute to a better functioning of financial markets and, therefore, to a more sustainable recovery," said Joaquín Almunia Commission Vice President in charge of Competition Policy

CDS information market

The first investigation focuses on the financial information necessary for trading CDS. The Commission has indications that the 16 banks that act as dealers in the CDS market give most of the pricing, indices and other essential daily data only to Markit, the leading financial information company in the market concerned. 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 (Articles 101 and 102 of the Treaty on the Functioning of the European Union – TFEU). The 16 CDS bank dealers are: JP Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Crédit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo Bank/Wachovia, Crédit Agricole and Société Générale.

The probe will also examine the behaviour of Markit, a UK-based company created originally to enhance transparency in the CDS market. The Commission is now concerned certain clauses in Markit's licence and distribution agreements could be abusive and impede the development of competition in the market for the provision of CDS information.

CDS clearing

In the second case, the Commission is investigating a number of agreements between nine of the above 16 CDS dealers (Bank of America Corporation, Barclays Bank plc, Citigroup Inc, Crédit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc., JP Morgan Chase & Co, Morgan Stanley and UBS AG) and ICE Clear Europe. These agreements were concluded at the time of the sale, by the dealers, of a company called The Clearing Corporation to ICE. They contain a number of clauses (preferential fees and profit sharing arrangements) which might create an incentive for the banks to use only ICE as a clearing house. 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. If proven, the practice would violate Art 101.

The Commission will also investigate whether the fee structures used by ICE give an unfair advantage to the nine banks, by discriminating against other CDS dealers. This could potentially constitute an abuse of a dominant position by ICE in breach of Article 102.

The CDS market

CDS are financial products traded between financial institutions or investors. They are derivatives originally created to provide protection against the risk of default. Today, CDS are also used for speculation. Information about CDS is needed to allow market participants to determine the value of their investment portfolios and develop investment strategies. In order to create and sell aggregated CDS information products and services, information service providers need access to a certain amount of CDS transaction and valuation data.

The lack of transparency about the trading of derivatives and financial instruments traded Over the Counter (OTC) became apparent during the recent financial crisis. Given the importance of financial markets for the real economy, the Commission has been working to improve the regulation of CDS and other derivatives (see IP/10/1125 and IP/10/1126). The Commission's antitrust tools are complementary to these regulatory measures, which together seek to ensure safe, sound and efficient financial markets.

Background on antitrust investigations

Articles 101 and 102 of the TFEU prohibit anticompetitive agreements and the abuse of dominant positions. The implementation of these provisions is defined in the EU's Antitrust Regulation (Council Regulation No 1/2003), which can also be applied by national competition authorities. The fact that the Commission has opened proceedings does not mean it has conclusive proof of antitrust violations. By initiating proceedings, the Commission relieves national competition authorities of their authority to apply the rules. National courts must also refrain from making decisions, which could conflict with a Commission own decision.

The Commission has informed the parties and the national competition authorities it has opened proceedings in this case.

There is no legal deadline to complete antitrust investigations. The duration depends on a number of substantial and procedural factors.

http://europa.eu/rapid/pressReleasesActi....

http://blog.creditlime.com/2011/05/10/an....

Antitrust Investigation into CDS market begins
The European Commission is investigating two separate antitrust cases concerning the credit default swap markets. According to the official press release:

In the first case, the Commission will examine whether 16 investment banks and Markit, the leading provider of financial information in the CDS market, have colluded and/or may hold and abuse a dominant position in order to control the financial information on CDS. If proven such behaviour would be a violation of EU antitrust rules. In the second case, the Commission opened proceedings against 9 of the banks and ICE Clear Europe, the leading clearing house for CDS. Here, the Commission will investigate in particular whether the preferential tariffs granted by ICE to the 9 banks have the effect of locking them in the ICE system to the detriment of competitors.

As paraphrased by Forbes,

In the first they are seeking clarity as to whether or not the British company, Markit colluded with 16 banks to dominate the market as they provided the finacial information required to allow the trading of CDS. If so, did they seek to edge out, unfairly, key market competitors such as Bloomberg and Thomson Reuters?

The second investigation is focused on ICE Clear Europe, a division of the Atlanta based Intercontinental Exchange. Was there an arrangement within which beneficial tariff charges were offered in league alongside profit sharing arrangements with 9 banks. If so did such an arrangement effectively bar access to the market for other clearing houses? No one could accuse ICE Clear Europe of having made an immediate financial killing as whilst it cleared CDS contracts in both Europe and the US that carried a nominal value of $17.5Tn it only made a profit of $15m from the activity. However, one could say this is just the begining as it has firmly cemented its relationships with the 9 banks.

More specifically,

The European Union’s competition commissioner, Joaquin Almunia, said Friday he is reviewing arrangements between CDS data provider Markit Group Ltd. and 16 dealers to determine whether they have “abused [their] dominant position [to] control the financial information on CDS” by giving “most of the pricing, indices and other essential daily data only to Markit.”

Separately, the commission is reviewing whether IntercontinentalExchange Inc.’s (ICE) European CDS clearinghouse has special fee arrangements with nine dealers that “might create an incentive [for them] to use only ICE” instead of competing clearers.

WSJ adds,

In one corner is ICE Clear Europe, the leading CDS clearinghouse, which gets its prices from Markit. In the other is CME Group Inc.’s (CME) European CDS clearinghouse, which gets prices from subsidiary CMA Datavision and Fitch Solutions, a unit of Fitch Ratings. LCH.Clearnet SA, a third provider that so far offers CDS clearing only in Europe, uses Markit exclusively.

ICE has a profit-sharing agreement with dealers who were the original owners of The Clearing Corporation, which ICE acquired in March 2009 as a predecessor to its CDS clearing service. Markit is majority-owned by dealers, after selling a minority stake to private equity firm General Atlantic in January last year, but is also part owned by employees. Fitch is owned by Fimalac SA (FIM.FR) of France.

At issue is the fact CMA Datavision does not receive end-of-day prices from the major CDS dealers, whereas Markit and Fitch do. That may put CME Clearing Europe at a disadvantage, market participants say, because internal risk departments at the dealers screen the end-of-day prices for outliers that might skew the numbers, making it some of the most reliable data available.

Clearinghouses need accurate end-of-day prices to mark members’ positions and set margin payments in support of open contracts. In futures trading, the daily settlement prices are determined by exchanges, but in OTC trading, clearinghouses depend on member firms to provide prices. When trading is thin, they rely on secondary sources.

CME uses CMA Datavision and Fitch as secondary sources, a spokesman said. ICE uses Markit as its data provider, but a spokesman declined to comment on its business.

Markit, CMA and Fitch are the only providers of independently sourced, consensus CDS prices used by clearinghouses. Other data providers, such as Bloomberg, redistribute CDS prices to market participants but do not have proprietary CDS data.

Markit gets CDS prices from about 23 dealers to produce its end-of-day prices and “has no exclusive arrangements with any data provider,” a spokesman said. Fitch uses prices from 20 dealers. “We don’t say who they are, but they are tier-one sellside market makers,” said Diana Allmendinger, research director at Fitch Solutions.

CMA gets prices by parsing e-mails from dealers to 36 investment firms, aggregating data where possible to produce continuous prices. It relies on its relationships with buysiders, said a CMA official; any prices it gets from dealers come only from second-tier market makers for comparison purposes.

What allegedly separates Markit is how often it sees CDS prices, and the quality of data it receives. Markit provides prices on 2,882 individual entities globally daily, while Fitch covers about 2,400 single entities. Each also quotes nearly 400 index prices. CMA’s data are not as broad in terms of the number of entities quoted, since it is only able to access prices on about 1,400 to 1,600 individual issuers a day, based solely on what is sent between sellside and buyside firms.

Markit also sends out prices more often than the others: real-time data for indexes (and on a 30-minute delay for individual issuers); real-time quotes on request for eligible customers; intraday prices six times a day, after the close in each time zone; and an end-of-day snapshot at 7 a.m. in London. Fitch produces only an end-of-day snapshot. CMA produces hourly updates.

Not everyone totally understands the basis for the investigation though which is usual of many government actions which have their critics as well as their proponents.

In the first case, besides CDS data company Markit, the 16 CDS dealer banks involved are: JP Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Crédit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo Bank/Wachovia, Crédit Agricole and Société Générale. In the second case, th 9 of 16 banks involved are Bank of America Corporation, Barclays Bank plc, Citigroup Inc, Crédit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc., JP Morgan Chase & Co, Morgan Stanley and UBS AG

Were Markit's opaque "prices" manipulated to facilitate successful short selling of stocks?

note ... from 2009


http://www.marketrap.com/article/view_ar....