Markit to be investigated in CDS probe
THE US Justice Department (DoJ) has contacted London-based data provider Markit in connection with a probe into the credit default swap (CDS) market.
A spokesman for Markit said the company, which is majority-owned by Wall Street banks, had “been informed of an investigation by the Department of Justice into the credit-derivatives and related markets”.
“We will work with the Department to provide any information requested of us,” it added.
The DoJ is looking into whether banks that own Markit have an unfair advantage because they enjoy access to the group’s data on the price of CDSs, which protect bond investors against corporate debt defaults.
Markit’s largest bank shareholder is JP Morgan Chase, followed by Bank of America and RBS.
The firm, which is headed up by Lance Uggla, is indelibly linked to the CDS market because it has made prices more visible to investors, giving them more ways to hedge risks and speculate.
“Markit strives to enhance the transparency and efficiency in the credit derivatives market by making all our independent data products commercially available to all market participants,” it said in a statement.
President Obama’s administration has pledged to bring the $592 trillion (£363 trillion) derivatives market, including CDSs, under the regulatory umbrella.
The CDS market, which was worth $62 trillion by the end of 2007, took much of the blame for the fall-out from the collapse of Lehman Brothers, because it allowed traders to speculate on a bank’s creditworthiness.
The US government wants trading in all over-the-counter derivatives to be registered and cleared though a central counterparty.