Pension Funds Claim Collusive Behavior in Securities Lending Markets
Three pension funds (the "plaintiffs") sued numerous major broker-dealers for allegedly inhibiting competition in the stock lending market.
In the Complaint filed in the U.S. District Court for the Southern District of New York, the plaintiffs claimed that the defendants have actively engaged in a conspiracy to maintain their control over the stock lending market. The plaintiffs characterized the alleged cooperation as a "working cartel," and argued that the broker-dealers formed a "dealer consortium" to protect their mutual interests.
Specifically, the plaintiffs allege that the defendants are working together to prevent the rise of companies that facilitate electronic trading and allow for lenders and borrowers to interact without the presence of a "middleman." They explained that the defendants have repeatedly taken steps to preserve their own "supracompetitive" profits, and in turn have prevented technological advances that would contribute to transparency and benefit other market participants:
"[T]he Defendants colluded to keep the securities lending market opaque by making the Prime Broker Defendants masters of the exclusive "gateway" that forces the buy side to rely on them, and them exclusively, for stock loan trading. Defendants have relegated both lenders and borrowers to an inefficient OTC market to protect their own supracompetitive profits. This market structure is wholly artificial and has directly imposed significant financial harm on other market participants."
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