Just 5 months after paying $425 million to settle CFTC charges that it had rigged the derivatives markets from 2007 to 2012, Citigroup announced that the CFTC is investigating the industry’s trading and clearing of interest-rate swaps.  Previous CFTC investigations of ISDAfix and other markets have involved the trading of interest-rate swaps, but not necessarily the clearing of the instruments.

The probe is related to a pension fund’s 2015 antitrust lawsuit alleging that 12 of the biggest swap dealers blocked fund managers from trading the instruments on exchanges to preserve their profits. Defendants in the 2015 complaint include:  Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, UBS Group, Barclays, Credit Suisse and Deutsche Bank.  ICAP Capital Markets and Tradeweb Markets were also sued.  

According to the 2015 complaint:  Banks named in the antitrust lawsuit conspired to prevent their customers “from enjoying the critical benefits of exchange trading, including transparent and competitive pricing and faster execution.”  “The dealer defendants did this for one simple reason: to preserve an extraordinary profit center.”

Under Dodd-Frank, most rate swaps must be traded on electronic systems known as swap-execution facilities and then backed by a clearinghouse. The mandate is meant to improve price transparency for investors while a clearinghouse reduces the effect of a default on the broader market by requiring collateral in case a user goes bankrupt.