The Department of Justice has opened an investigation into the credit derivatives market, with letters sent to over a dozen dealers asking for several years?? worth of detailed information about trading and pricing.
The move comes as the regulatory spotlight continues to shine on the credit default swaps (CDS) market, a sector of the privately-traded derivatives universe that grew dramatically in the last decade and generated huge profits for Wall Street.
Initially devised as a type of insurance on defaults, the CDS market is widely blamed for amplifying the credit crisis as it became a means for institutions like AIG to place vast bets on corporate credit and mortgage debt.
The letters, sent to banks with an equity stake in Markit Group, which provides pricing data on the CDS market and has developed many of the most closely-watched derivatives pricing benchmarks in it such as the mortgage sector??s ABX, CDX and ITraxx Europe indices, were sent recently.
According to sources, it does not specify why the DoJ is seeking the information and whether it is a fact-gathering mission or linked to specific concerns of misconduct or market dominance.
It was sent by the anti-trust division of the DoJ.
Markit said in a statement it ??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.?
Shareholders in Markit, set up in 2001, include JPMorgan Chase, Goldman Sachs, Deutsche Bank, Bank of America and Morgan Stanley.
