Expanding the Reach of the Commodity Exchange Act's Antitrust Considerations
45 Hofstra Law Review 573 (2016)
99 Pages Posted: 13 Apr 2017
Date Written: 2016
In recent years, a small group of financial institutions have paid billions of dollars to settle civil and criminal claims that they formed cartels to rig the prices of certain critically important financial instruments and to stifle competition in others. For example, bankers would rig global benchmark interest rates for the purposes of benefitting their trading positions in over-the-counter (OTC) interest-rate swaps, which are bets on future interest rate movements. By conspiring with horizontal competitors to fix the benchmarks that were components of the prices of financial instruments, financial institutions and their employees harmed competition by warping the normal market factors that governed the prices of those instruments.
The U.S. regulator for these markets, the Commodity Futures Trading Commission (CFTC), has broad authority to combat fraud and market manipulation, but it is not feasible to place all relevant forms of misconduct into one of those two categories. Antifraud claims generally require proof of misrepresentations or deceit, but institutions can engage in anticompetitive conduct without being deceptive. Likewise, market manipulation claims require proof that the defendants acted with the specific intent to cause an artificial price, which is nearly unprovable. An overlooked provision of the Dodd-Frank Act of 2010 gave the CFTC “Antitrust Considerations” authority to combat anticompetitive conduct, but this provision only applies to 100 or so large firms, which is a loophole so wide that the vast majority of market participants are beyond the provision’s reach. This Article argues that antitrust law is the ideal tool to use to address collusive schemes by horizontal competitors to fix the prices of financial instruments and that the CFTC should promulgate a regulation enabling the agency to bring civil enforcement actions against any person who causes (or attempts to cause) unreasonable restraints of trade or material anticompetitive burdens in the markets for derivatives. This would provide the agency that is the congressionally-designated expert on the markets for derivatives with broad authority to prevent anticompetitive conduct in those markets.
Keywords: Antitrust, Financial Regulation, Swaps, Derivatives, Banking Regulation,
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