Benchmarking Justification: Testing the Antitrust Theories of Harm behind Alleged Market Manipulation – ABA Committee Program Summary

Benchmark manipulation is a hot topic in antitrust circles these days. There are two primary types of benchmarks: sample-based benchmarks that survey market participants and trade-based benchmarks that are calculated based on executed transactions during a time period. Both variants provide significant market efficiencies, such as anchoring prices, signaling market conditions to observers, and reducing the transaction costs between buyers and sellers. However, since benchmarks operate by sampling market participants, they are particularly subject to potential unilateral or concerted manipulation by interested parties. The rate-setting process provides opportunities for rate submitters to improperly benefit themselves at the expense of their clients.

Benchmarks are commonly employed in the financial and commodities markets. A host of recent benchmark investigations, law suits and settlements arise from common-place benchmark indices such as Libor, Euribor, Forex and the Platts oil index. There are multiple regulatory agencies that have jurisdiction over benchmark misconduct under numerous domestic laws that prohibit benchmark misconduct, such as the antitrust laws, the Commodities and Exchange Act, the Racketeer Influenced and Corrupt Organization Act, and the wire fraud statute. Government enforcers are pursuing corporations involved in the benchmark misconduct, as well as the individuals who were responsible for manipulating benchmark rates. There has also been a litany of follow-on private cases seeking damages from companies allegedly engaged in misconduct. Companies are also exposed to regulatory investigations and enforcement on a global basis, as many of these benchmarks operate across multiple jurisdictions. For example, cases are frequently brought by United States and European Union enforcers to preserve the integrity of the financial and commodities markets.

The full article provides an overview of benchmarking indices and discusses a recent panel by private practitioners and antitrust enforcers who analyze the antitrust theories of harm and recent investigations into alleged benchmark manipulation. The article is available in its entirety in the Summer 2014 issue of The Price Point, a publication by the American Bar Association’s Pricing Conduct Committee. Please contact the author with any questions or for assistance obtaining a full copy of the article.