The Manipulation Monitor: A Guide to Financial Market Manipulation Antitrust Litigation

Commentary on Antitrust and Other Competition Law Litigation Relating to the Financial Services Industry.
Posted: May 2, 2018

Welcome to Schlam Stone and Dolan LLP’s Newest Blog, The Manipulation Monitor: A Guide to Financial Market Manipulation Antitrust Litigation

Welcome to Schlam Stone and Dolan LLP’s newest blog, The Manipulation Monitor: A Guide to Financial Market Manipulation Antitrust Litigation.

What Will We Be Writing About

In the Manipulation Monitor, we will discuss developments in antitrust and other competition law litigation relating to the financial services industry.

If you read our Commercial Division Blog (and you should), you know that it is very caselaw-focused. The goal of The Manipulation Monitor is different. We of course will write about the law relevant to antitrust and other competition law claims against financial institutions. But we also will write about the manipulation of the financial markets more generally: emerging legal theories of liability or defense; news regarding new investigations and new complaints; and key happenings in current litigation, such as motions made and decided and settlements. And we will post about topics of interest to current and potential parties to such actions such as litigation strategy and financing.

Recent Suits

Just in this decade, there likely have been well over a hundred—possibly hundreds—of lawsuits against players in the financial markets alleging that they manipulated those markets in various ways. In a way, this is inevitable. It is the nature of financial markets that banks interact with each other—that is the market working as it is supposed to—but when competitors interact in ways that often are opaque to outsiders, concerns about anticompetitive conduct arise. No doubt most interactions are entirely proper and necessary parts of the functioning of the financial markets. But experience—and criminal convictions, massive fines and settlements—show that not all the interactions have been innocent.
Here are some of the types of antitrust cases relating to the financial markets that are pending right now:

Benchmark Rate Manipulation

There have been a host of investigations, antitrust litigations and criminal cases accusing financial institutions of manipulating the market for benchmark rates such as LIBOR (the London Interbank Offered Rate), BBSW (the Australian bank bill swap rate), EURIBOR (the Euro Interbank Offered Rate), CDOR (the Canadian Dealer Offered Rate), SIBOR (the Singapore Interbank Offered Rate) and TIBOR (the Tokyo Interbank Offered Rate). In general, the claim in such cases is that instead of providing their current offered rate to help in benchmark rate setting, banks coordinated their responses to move the market in a way that benefited them.

The benchmark rate litigations have involved several complicating factors beyond the factual question of whether the banks colluded (this seems firmly established at this point, particularly with LIBOR) including personal jurisdiction over foreign actors, claims by indirect purchasers and measuring damages where, given the ubiquity particularly of LIBOR-linked financial products and business arrangements, a lower LIBOR rate might help a plaintiff in one area and hurt it in another.

Examples of benchmark rate manipulation suits are: In re: LIBOR-Based Financial Instruments Antitrust Litigation, No. 1:11-md-02262 (SDNY) (LIBOR manipulation); FrontPoint Asian Event Driven Fund, Ltd. et al v. Citibank, N.A. et al. , No. 1:16-cv-05263 (SDNY) (SIBOR manipulation); and Fire & Police Pension Association of Colorado v. Bank of Montreal et al., No. 1:18-cv-00342 (SDNY) (CDOR manipulation).

Commodities Manipulation

In recent years, there have been antitrust cases brought against financial institutions relating to manipulation of the markets for aluminum, platinum, palladium, silver and gold. These suits have not gone as well for plaintiffs as the benchmark rate manipulation cases, mostly because of questions about the connection between the manipulation alleged and the harm to plaintiffs. For example, in In re: Aluminum Warehousing Antitrust Litigation, No. 1:13-md-02481 (SDNY), the claims related to a conspiracy by banks that traded in the aluminum futures market to delay deliveries at warehouses that stored aluminum, driving up the price. But those claims were found to be insufficient to state an antitrust claim in the separate markets for aluminum or aluminum products. On the other hand, the allegations in the suits for manipulating the silver and gold markets are more like the claims in the benchmark rate manipulation cases: that certain banks colluded to set the spot rate for silver and gold in a way that benefited their market positions.

Examples of commodities manipulation suits are: In re: Aluminum Warehousing Antitrust Litigation, No. 1:13-md-02481 (SDNY); In re: Platinum and Palladium Antitrust Litigation, No. 1:14-cv-09391 (SDNY); and In re: London Silver Fixing, Ltd., Antitrust Litigation, No. 1:14-md-02573 (SDNY).

Foreign Exchange Market Manipulation

The claims in the foreign exchange market manipulation cases generally mirror those in the benchmark rate manipulation suits: plaintiffs allege that traders for the defendant banks communicated with each other informally to set forex spot rates in a way that was advantageous to the banks’ positions in the affected currencies. And like the benchmark rate manipulation suits, these actions involve questions of jurisdiction, the rights of indirect purchasers and damages.

An example of a forex manipulation suit is In re Foreign Exchange Benchmark Rates Antitrust Litigation, No. 1:13-cv-07789 (SDNY).

Government Bond Market Manipulation

Financial institutions recently have been alleged to have manipulated the markets for US treasury bills and securities, supranational, sub-sovereign, and agency bonds (bonds issued by bonds international entities such as provinces, states and regional development banks, or “SSA bonds”), and Mexican government bonds. Generally stated, these suits allege that traders at financial institutions colluded to manipulate auctions of US treasury bills and securities and Mexican government bonds, and the secondary market for SSA bonds, all in a way that advantaged the financial institutions over other market participants.

Examples of government bond manipulation suits are: In re: Treasury Securities Auction Antitrust Litigation, No. 1:15-md-02673 (SDNY); In re: SSA Bonds Antitrust Litigation, No. 1:16-cv-03711 (SDNY); and Oklahoma Firefighters Pension & Retirement System et al v. Banco Santander S.A. et al., No. 1:18-cv-02830 (SDNY) (Mexican government bonds).

High-Frequency Trading

The high-frequency trading antitrust actions are different from the suits discussed above. In the high-frequency trading suits, the plaintiffs claim that exchanges and related companies allowed financial institutions and other traders access to information that was not available to other investors so that they could engage in high-frequency trading that gave them an information advantage over regular investors that resulted in trading gains for the select few with access to this information and losses to other investors.

An example of a high-frequency trading suit is In Re: Barclays Liquidity Cross and High Frequency Trading Litigation, No. 1:14-md-02589 (SDNY).

Stock Loans

The stock loan suits relate to the market for lending stock to facilitate short selling. In short selling, the party that sells short often borrows the stock it is selling from an institutional investor such as an insurance company or a pension fund, which is paid to make the loan. In the middle of this transaction sit brokers—the financial institutions—that create an opaque market that sets the bid and ask prices for loaned stock. The plaintiffs in the stock loan suits alleged that the financial institutions limit competition in this market to increase the fees they earn and have conspired to keep electronic trading that would provide more transparency on the spreads between bid and asked prices out of the market.

An example of a stock loan suit Iowa Public Employees’ Retirement System et al v. Bank of America Corporation et al., No. 1:17-cv-06221 (SDNY).

Swap Market Manipulation

Many suits—now consolidated into two multi-district litigations—relate to manipulation of the credit default swaps and interest rate swaps markets by conspiring to keep competing trading platforms out of the markets, making these allegation similar to the allegations in the stock loan suits.

Examples swap market manipulation suits are In re: Credit Default Swaps Antitrust Litigation, No. 1:13-md-02476 (SDNY) and In re: Interest Rate Swaps Antitrust Litigation, No. 1:16-md-02704 (SDNY).

Recurring Issues

Personal Jurisdiction and Applicability of US Antitrust Laws: The financial markets are global. Many of the actors in these suits are located outside the United States. There often is a question whether the plaintiff—particularly a foreign plaintiff—has a claim under US law and whether a US court has jurisdiction over the defendants.

Market Definition and Indirect Purchasers: The scope of the US antitrust laws is not unlimited. Questions regarding what the affected market really is and how the plaintiff was injured in that market can determine the survival of a claim.

Proof: Traders must communicate to trade. And to collude. Modern statistical analysis helps, but sometimes the dividing line between permissible and impermissible communications can be unclear.

Class Actions: Many of these actions are brought as class actions. This presents both opportunities and challenges for victims. It’s appealing to let someone else bear the expense and disruption of bringing an action on behalf of a class. But of course, when it comes time to settle, a victim might not always like the deal class counsel and representatives reach with the defendants.

We welcome your feedback. If you have questions or comments about The Manipulation Monitor, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at or call him at (212) 344-5400.

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