Collusion and cartel detection in the Euro interest rate derivatives market

The judgment of the General Court in the HSBC case brought back the story of EURIBOR scandal. The European Commission found that banks participated in a cartel-related to Euro interest rate derivatives and manipulated the EURIBOR benchmark in 2007. Part of the dispute was settled but several banks, including HSBC, Crédit Agricole and JPMorgan, appealed the decision of the European Commission.

In September 2019 the General Court ruled in HSBC case upholding the Commission’s decision and found infringement ‘by object’ of Article 101 TFEU but annulled the fine of EUR 34 million for insufficient reasoning of how it was calculated. The story continuous as the HSBC judgment is appealed both by the Commission and HSBC. Furthermore, Credit Agricole and JP Morgan also challenged the Commission’s EURIBOR decision.

These cases will bring more clarity on hybrid settlement procedures, application of the concepts of ‘single continuous infringement’; but most importantly the discussions around will allow us to understand better competition law infringements in benchmarks and related financial instruments.

Cartels in interest rate derivatives are extremely difficult to underpin. First, that is due to the diverse interests between cartelists and even of the same participant of a cartel but at different time. Second, even traders’ interests may be opposite to the interests of a bank employing those traders. Third, collusion is costly as the payout is uncertain (both in terms of time and benefits) and may require exceeding the cartel timeframe. These features imply that collusion may be episodic and leave no traces in benchmark rates and variation patterns.

The exchange of information and channels used for information exchange plays a vital role in the competition supervision authorities to detect the cartel. Financial investment market participants extensively use chatrooms for dealing (more on issues with chatroom in the context of FX market trading here.) However, the in HSBC case the General Court was direct confirming that not all information exchanges fall within infringement ‘by object’. The competition authority to has prove that information exchange gave the trader advantage which allowed to adjust their trading strategies as a result. That is a challenging standard of prove taking into consideration the features of the interest rate derivatives market.

The same challenge is with the concept of single continuous infringement. The dynamics of derivative markets, diverse interests of cartelists at different time periods, even uncertain benefits on particular transactions make it complicated to prove that collusion is a single continuous infringement. Thus, to define the conduct of alleged cartelists as an „overall plan“ is not that straight forward as in more conventional markets.

The full article analysing the features of the euro interest rate derivatives market and challenges of detecting cartels in it is published as a blog post in the official blog of European Competition and Regulatory Law Review (CoRe) is here.