It seems that the US Department of Justice cannot make up its mind what to do with Markit, the data provider that provides benchmark indexes for the credit-derivatives market.
In mid-July, the DoJ announced that it had begun an investigation into anticompetitive practices in the credit derivatives market, and sent notices to Markit and its bank shareholders for various details of their trading activities.
In the same week, the Depository Trust & Clearing Corp. announced that the DoJ also approved of its plans to set up a derivatives settlement venture with Markit. The DTC was also one of the 15 companies being asked for data.
According to DOJ spokesperson Laura Sweeny in a email to Bloomberg, the antitrust division was looking at the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries. She declined to elaborate.
Markit has come under investigation because not only is the company the biggest supplier of credit derivatives data, but also owed by the dealers, Markits major clients. Investors and politicians are no longer happy with just having a well-organised tribe. They want the financial equivalent of democracy: data that is available to all, or produced through open, competitive means, not just sold to a few paying banks and investors. she says.
Conflict of interest a touchy subject for regulators. Discussions are still ongoing about the fate of credit rating agencies, who were paid by the very companies whose products they rated, help form a catalyst for the 2008 credit crunch.
Markits conflict of interest comes in another form of data. The firms calculated prices from data collated from the middle offices of major dealers. Although over 1,500 financial institutions use Markit services, the major clients are also the major shareholders. Critics, most notably the exchanges and a few major hedge funds who would well placed to benefit from a data revolution in credit derivatives data, argue that the relationship between shareholders and Markit presents a conflict of interest.
Giles TurnerNews Editor