EU drops probe into investment banks over derivatives trading

Brussels (dpa) - The European Commission on Friday abandoned an investigation into 13 international investment banks suspected of colluding to limit the activities of competitors, explaining that the evidence was "not sufficiently conclusive."In 2013, the European Union‘s executive launched an inquiry over the trading of Credit Default Swaps (CDS), a type of financial insurance that some believe to have exacerbated the eurozone‘s sovereign debt crisis. CDS insure against a specific economic event, such as a government defaulting.In 2013 alone, nearly 2 million CDS contracts were active, amounting to a gross notional value of more than 10 trillion euros (13 trillion dollars at the time), according to the European Commission.The investment banks under investigation were Bank of America, Barclays, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland and UBS.These lenders or their subsidiaries were suspected of shutting their competitors out of the exchange trading market, limiting them to more expensive and risky over-the-counter trading of credit derivatives, the commission said at the time.But on Friday the commission dropped its investigation into the banks, on the basis of written replies from the lenders, further documentation and oral hearings conducted in 2014."The evidence was not sufficiently conclusive to confirm the commission‘s concerns with regards to the 13 investment banks," it wrote in a statement.However, the commission said it would continue to investigate Markit, the leading provider of financial information on CDS trading, as well as the International Swaps and Derivatives Association, a global association of derivatives traders.If found guilty of breaching the EU‘s competition rules, companies can face fines of up to 10 per cent of their annual global turnover.The EU has since taken steps to regulate the CDS market and other types of financial instruments, including a ban on so-called naked CDS, which allowed market punters to bet on negative events in which they do not have a stake.The instrument helped exacerbate market pressure on Greece, contributing to the start of the eurozone crisis.