Antitrust: Commission seeks feedback on commitments by ISDA and Markit on credit default swaps

The Commission has concerns that the International Swaps and Derivatives Association Inc. (ISDA) and the information service provider Markit, each separately, may have breached EU antitrust rules. According to the Commission’s preliminary concerns, ISDA and Markit refused to license to exchange trading platforms certain data and indices used by the industry for the pricing of CDS. This may have blocked or delayed the emergence of an effective market for exchange traded credit derivatives. The Commission informed ISDA and Markit of these concerns in a Statement of Objections in July 2013.

A CDS is a derivative contract designed to transfer the credit risk, or risk of default, linked to a debt obligation. CDS are used by investors both to hedge risks and as investments. As a hedge, a CDS provides protection against the credit risk arising from holding debt instruments. As an investment vehicle, CDS can be used to take a view on the future development of the debt issuer’s creditworthiness and earn a profit if the view is correct. The buying and selling of CDS can be carried out in two different ways: CDS can be traded “over the counter“, i.e. privately and through market makers. Or, they can be traded on an exchange trading platform, in which case supply and demand is matched anonymously on an all-to-all trading platform.

As regards the latter, exchange trading platforms wishing to offer trading for CDS indices need access to:

  • the “Final Price”, over which ISDA claims proprietary rights, i.e. the price resulting from auctions that are run to determine the settlement price of credit derivative trades following a corporate default, and which is used industry-wide to price CDS after the default of a reference entity;
  • CDS indices to attract liquidity, such as the iTraxx and CDX indices owned by Markit which are baskets of the most commonly traded CDS. Most CDS contracts that trade over the counter reference these two indices. This is due to their high liquidity, making them also a suitable reference for exchange traded products such as credit futures or options.

However, according to the Commission’s concerns, ISDA and Markit did not licence these inputs for exchange trading. This may have blocked or delayed the emergence of exchange trading, which would enable effective competition with investment banks, who dominate the over the counter trading of CDS. This would benefit the market, also because exchange trading is safer and generally cheaper than over the counter trading.

To address the Commission’s concerns, ISDA and Markit have each offered a set of commitments.

Proposed commitments

To address the Commission’s concerns, ISDA has offered:

  • to license all its rights in the Final Price for the purpose of exchange trading, clearing and/or settling of credit derivatives on fair, reasonable and non-discriminatory (FRAND) terms;
  • to submit to a third-party arbitration procedure with binding effect in the event of a disagreement on the FRAND terms and conditions;
  • to prevent investment banks from influencing ISDA’s decisions on licensing the Final Price by transferring the responsibility for the decision to license from ISDA’s Board of Directors to the Chief Executive Officer who must not seek the views of the banks;
  • not to unilaterally terminate a Final Price license due to “auction manipulation concerns” unless ISDA demonstrates these concerns to the satisfaction of a monitoring trustee and proves that no other less stringent measure could address this risk.

To address the Commission’s concerns, Markit has offered:

  • to license its rights in the iTraxx and CDX indices on FRAND terms for exchange traded financial products based on the indices;
  • to submit to binding third-party arbitration in the event of a disagreement on the FRAND terms and conditions;
  • to prevent investment banks from influencing Markit’s management in taking individual licensing decisions, in particular by reducing their influence in Markit’s Advisory Committees and by precluding them from discussing the merits of individual licensing requests.

Both sets of commitments would apply for ten years and be monitored by an independent trustee.

A summary of the proposed commitments will be published in the EU’s Official Journal. Interested parties can submit comments within one month from the date of publication. The full text of the non-confidential version of the commitments will be available at the case website.


The International Swaps and Derivatives Association Inc. (ISDA) is a trade organisation representing over 850 financial institutions. ISDA claims proprietary rights over the “Final Price”, which results from auctions that are run to determine the settlement price of credit derivative trades following a corporate default. The Final Price is subject to a Use Agreement adopted by ISDA in 2007 and still in force. The Use Agreement governs terms and conditions of the use of this data and, among others, rules out its use for exchange-traded products or transactions.

Markit Ltd. is a global provider of financial information services.

The Commission opened antitrust proceedings into the CDS market in March 2011 and extended the scope of the investigation to ISDA in March 2013.

In July 2013, the Commission issued a Statement of Objections against ISDA, Markit and 13 investment banks, where it set out its concerns regarding the blocking of a market for the exchange trading of credit derivatives. In December 2015, the Commission decided to continue its investigation regarding ISDA and Markit and to close its investigation regarding the banks.

If the market test indicates that the commitments are a satisfactory way of addressing the Commission’s competition concerns, the Commission may adopt a decision making the commitments legally binding on ISDA and Markit under Article 9 of the Antitrust Regulation 1/2003. Such a decision would not conclude that there is an infringement of the EU antitrust rules but legally binds the companies concerned to respect the commitments offered.

If a company breaks such commitments, the Commission can impose a fine of up to 10% of the company’s worldwide turnover, without having to establish an infringement of EU antitrust rules.

More information is available on the Commission’s competition website in the public case register under the case number 39745.

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