Hedge Funds and Others May Be Eligible to Collect Proceeds From $1.86 Billion CDS Antitrust Settlement

On January 11, 2016, Quinn Emanuel announced the $1.86 billion settlement of a class action lawsuit alleging that, since 2008, major banks had conspired with the International Swaps and Derivatives Association and financial information services firm Markit Group to limit transparency and competition in the credit default swaps (CDS) market by thwarting attempts to create an exchange for trading CDS. The plaintiffs estimated that the defendants’ conduct inflated bid/ask spreads on CDS by 20% on average, amounting to damages between eight and twelve billion dollars. The U.S. District Court for the Southern District of New York has issued an order establishing a class of plaintiffs, identifying covered CDS transactions and preliminarily approving the settlement. Market participants covered by the class action plaintiffs – including hedge funds, pension funds, asset managers and other institutional investors that purchased certain CDS – have a limited time to opt out of the settlement class before final approval of the settlement. This article documents the history of the litigation and the plaintiffs’ claims, and summarizes the settlement terms. For coverage of another antitrust suit involving financial market participants, see “Federal Antitrust Suit Against Ten Prominent Private Equity Firms Based on Allegations of ‘Club Etiquette’ Not to Jump Announced Deals Survives Summary Judgment Motion” (Apr. 11, 2013).

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