New Rules, New Tools:
Using Antitrust Laws to Break Banks’
Pricey Stranglehold on Financial Markets
Carol V. Gilden, Cohen Milstein
Mary Sharon Reilly, Chicago Teachers’ Pension Fund
NCPERS Annual
Conference, 05.18.16
Overview
• Changes to laws and portfolios
• U.S. securities laws no longer offer complete protective coverage
• Congress and courts have narrowed protections
• Investment portfolios have diversified
• New legal tools for investors
• Commodities Exchange Act claims
• Claims under Antitrust laws
• How funds are fighting back
• A multi-trillion-dollar market held captive
• CTPF v. Bank of America, et al.
• What you can do
CHANGES TO LAWS AND PORTFOLIOS
Remember the ‘80s?
• Pension funds invested largely in
stocks, bonds and cash
• State and federal securities laws
offered strong protective coverage
But Congress Narrowed Securities Laws
• Born after the Crash of 1929, securities laws originally
offered broad protection and covered wide range of
securities
• Congress in 1990s reduced scope of laws and made it
tougher to use them in private lawsuits
• PSLRA of 1995
• SLUSA of 1998
… While the Supreme Court Concurred …
• Blue Chip Stamps – held
that buyers and sellers,
but not holders, could sue
• Central Bank of Denver –
excluded aiders and
abettors from liability
• Morrison v. NAB – ruled
only U.S. transactions
were covered
… And Portfolios Became More Diversified
Asset Allocation for State
and Local Pensions, 2013
2%
6%
16%
51%
25%
Equities
Alternatives
Other
Bonds/Cash
Real Estate
Source: Public Plans Database
• More than $1.4 trillion
in global pension
assets in alternatives
(WSJ, July 2015)
• Latest P&I 1000
survey found that
• DB plans held $22.5
billion in commodities
• 55 U.S. pension funds
held commodities
NEW LEGAL TOOLS FOR INVESTORS
Commodities Exchange Act (CEA)
• Protects investors with
commodity futures contracts
• Bars market manipulation in
connection to a contract for
sale of a commodity
• Current CEA cases on
behalf of purchasers of:
• Gold futures contracts
• Eurodollar futures
• U.S. Treasury futures
Antitrust Laws
• Provide broad remedies against contracts, combinations
or conspiracies that ‘unreasonably’ restrain competition
• Can arguably touch any good or service, providing
protection against price-fixing, market manipulation and
other conspiracies involving broad range of investments
• In addition to commodities futures cases, pension funds
are using antitrust laws to recover losses in:
• Credit default swaps – recently settled for $1.9 billion and
injunctive relief designed to encourage open exchanges
• Foreign benchmark rates – $2 billion in partial settlements
• Interest rate swaps – in early stages
HOW FUNDS ARE FIGHTING BACK
A Multi-Trillion-Dollar Market Held Captive
• Broad spectrum of investors use interest-rate swaps, or IRS,
to swap their fixed payments for floating-rate payments based
on certain benchmarks
• For years, the multi-trillion-dollar IRS market has been ripe for
exchange trading, which benefits investors
• Transparent and competitive pricing
• Faster execution
• Lower bid/offer spread
• Big bank dealers have consistently blocked exchange trading
to protect billions in higher fees from opaque OTC market
• Conspired to squash potential market entrants on buy-side
• Boycotted practices with potential to bring exchange trading,
including Swap Execution Facilities envisioned by Dodd-Frank
• Created electronic markets for themselves but barred investors
CTPF v. Bank of America, et al.
• Monitoring counsel identified rigged market, and along
with a partner firm, developed case
• CTPF found case compelling
• Offered real possibility of recovering losses
• Provided opportunity to help facilitate introduction of exchange
trading
Questions & Answers with
Mary Sharon Reilly, CTPF Trustee
What You Can Do
• Institute comprehensive portfolio monitoring program
• Use multiple counsel to benefit from different areas of strength
• Make sure at least some firms are looking at losses in
investments beyond stocks and bonds, and beyond U.S. borders
• Hire firms capable of developing innovative case theories to
address complexities of today’s diversified portfolios
• Take an active role in litigation when warranted
• Size of losses gives you a stake in overseeing case
• Jurisdiction could result in dismissed claims due to statute of
limitations and/or repose
• Your claims may not be included in class
• Leadership allows you to make beneficial changes