MYSTERY SURROUNDS MARKIT INQUIRY IN U.S.

Posted July 16, 2009

NEW YORK – The reported inquiry by the antitrust division of the US Justice Department into data warehouse Markit Group Holdings concerning credit derivatives markets and related markets has few specifics, at least any that have been publicized, observes an industry analyst.

“It’s not specific about what disservice or crime that Markit or any of its backers have done. Have they denied [market participants] timely information or any information per se? Have they not been given an opportunity to contest prices?” says John Jay, Senior Analyst at financial industry consultancy Aite Group. “If you are in the controlling seat and everyone’s looking for information of which you are at least a partial provider, there can be certain instances of what may be considered abuses by clients, but [actual market manipulation] seems for me to be tough to envision.”

Markit’s owners include JPMorgan Chase, Bank of America and the Royal Bank of Scotland. The company issued a statement, offering no further comment, that, “Markit has 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. Markit strives to enhance transparency and efficiency in the credit derivatives market by making all our independent data products commercially available to all market participants.”

Market venues worldwide often have backing from major investment firms, notes Jay. “Regulators are looking at every aspect of the financial services industry, in particular, the credit default swap sector,” he says. “With so few bona fide dealers in this space, it is not a surprise that this is happening. However, it should not be forgotten that oftentimes, banks/dealers act as both investors and stakeholders in the capital markets – as with TradeWeb and some exchanges.”