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NEW YORK (Reuters) - A Manhattan federal judge said on Thursday that investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default swaps.
While dismissing part of the case, U.S. District Judge Denise Cote said investors may press claims that the defendants' Sherman Act violations caused them to pay unfair prices on CDS trades from the autumn of 2008 through the end of 2013, even as improved liquidity should have driven costs down.
"The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence," Cote said.
The defendants include Bank of America Corp (BAC.N), Barclays Plc (BARC.L), BNP Paribas SA (BNPP.PA), Citigroup Inc (C.N), Credit Suisse Group AG CSGN.VX, Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc (GS.N), HSBC Holdings Plc (HSBA.L), JPMorgan Chase & Co (JPM.N), Morgan Stanley (MS.N), Royal Bank of Scotland Group Plc (RBS.L) and UBS AG UBSN.VX.
Other defendants are the International Swaps and Derivatives Association and Markit Ltd MRKT.O, which provides credit derivative pricing services.
Credit default swaps are contracts that let investors buy protection to hedge against the risk that corporate or sovereign debt issuers will not meet their payment obligations.
The lawsuit seeks class-action status, and damages could reach tens of billions of dollars.
"We are gratified with the decision," said Dan Brockett, a partner at Quinn Emanuel Urquhart & Sullivan representing the plaintiffs. "It will be a long, protracted battle."
All 12 banks and Markit declined to comment. ISDA spokeswoman Lauren Dobbs said the trade group believes it acted properly, and the remaining claims have no merit.
U.S. and European regulators have probed potential anticompetitive activity in CDS. In July 2013, the European Commission accused many of the defendants of colluding to block new CDS exchanges from entering the market.
In the lawsuit, investors accused the banks of trying in late 2008 to quietly scuttle the launch of the Credit Market Derivatives Exchange (CMDX), being developed in part by CME Group Inc CME.N.
Investors claimed the banks did this by agreeing not to use new CDS platforms, and arranging for ISDA and Markit not to provide licenses to CMDX as they had contemplated.
Cote rejected the banks' argument that their actions "just as plausibly" could have resulted from "independent business decisions" in response to the global financial crisis.
"The financial crisis hardly explains the alleged secret meetings and coordinated actions," the judge wrote. "Nor does it explain why ISDA and Markit simultaneously reversed course."
Citing a lack of evidence, Cote dismissed a claim accusing the banks of colluding to monopolize trading, and claims predating the autumn of 2008.
The case is In re: Credit Default Swaps Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-md-02476.
Editing by Matthew Lewis