CDS investigation (European Commission)

In the context of an investigation by the European Commission (EC) regarding allegedly
collusive practices of a number of investment banks relating to the potential on-exchange trading of Credit Default Swaps (CDS), a Compass Lexecon team in the Paris office (David Sevy, Frédéric Palomino and Jérémiah Juts) was retained by BNP Paribas (BNPP), a major French bank, to produce a number of economic analyses in response to the Commission’s Statement of Objections. We analyzed whether the outcome of credit event auctions could be an indisputable market price reference and what alternatives to this mechanism could be considered; whether tradable price fixings were indispensable for on-exchange trading; whether CDS could be considered standardized enough to be traded on-exchange; and the individual incentives of banks to shift trading from OTC to an exchange venue. These reports were submitted to the EC and Compass Lexecon experts also appeared on behalf of BNPP at a hearing before the EC. After the hearing, the case was dropped without sanction. The case received the GCR “Behavioural Matter of the Year” award for Europe. The Compass Lexecon team supported BNPP (Alison Kellett and Marie-Pascale Heusse) and its advisors (Florence Ninane, John Terzaken and Romain Maulin of Allen & Overy LLP).