A recent New York Times article discusses a "new era of antitrust enforcement" - and the target is Wall Street. The DOJ is now focusing significant resources to investigate bid-rigging, interest rate manipulation and other forms of collusion on Wall Street trading desks, and the word's biggest financial services firms and banks are feeling the heat.
The primary matter is the DOJ's investigation into suspected manipulation of benchmark rates - particularly the London interbank offered bank, or Libor - for setting global interest rates. The DOJ's antitrust division also announced a criminal investigation into suspected manipulation of foreign exchange rates, which comes after several years of investigations into possible bid-rigging in the municipal bond market, as well as anticompetitive conduct in the market for credit-default swaps. The DOJ also opened a preliminary inquiry into possible price-fixing in the metals warehousing business. The issue there is whether Wall Street firms holding controlling interests in those warehouses engaged in a conspiracy to artificially drive up storage rates for aluminum and other metals.
Until recently, antitrust regulation was never deemed a meaningful cause for worry on Wall Street. That changed in 2009, when the DOJ antitrust division announced that banks would be receiving closer scrutiny, along with four other sectors. The antitrust division has followed through by targeting anticompetitive conduct in the financial sector, and a similar crackdown has been under way by antitrust authorities in the European Union, which has already levied hundreds of millions of euros in fines against financial firms. The plaintiffs’ bar has also piled on by filing numerous civil class action lawsuits against banks that repeat the accusations underlying the government’s investigations into collusion.
As John Terzaken, the author of the New York Times article and prior director of criminal enforcement at the DOJ antitrust division notes: "Given the enormous costs and risks posed by the new enforcement threat, financial firms must take antitrust compliance seriously. Wall Street needs to begin taking requisite steps to mitigate the hazards associated with potential collusion and price-fixing. That will require firms to rethink the way their trading desks have traditionally gathered information and made markets. ... One obvious starting point is greater use of antitrust compliance programs. Banks - especially those with trading desks - would be wise to bolster their antitrust training and oversight systems to ensure that traders don’t even appear to share information on pricing or bidding on securities. Firms should [also] conduct a comprehensive top-down audit of trading operations. If serious problems are identified, it may be wise to consider alerting the Justice Department and seeking a spot in the antitrust division’s leniency program."
Wall Street should take Terzaken's advice to heart. All signs point to the fact that antitrust enforcers are now targeting banks and financial institutions, so any compliance efforts these institutions can take now are certain to reap benefits - and prevent business upheaval - down the road.