On October 16, 2015, Quinn Emanuel Urquhart & Sullivan, LLP filed a motion for approval of settlement on behalf of named plaintiff Los Angeles County Employees Retirement Association (LACERA), indicating that 12 of the largest banks, the International Swaps and Derivatives Association (ISDA®) and Markit (a data collection and dissemination service) have settled allegations that they violated antitrust laws by impermissibly colluding to prevent credit default swaps (CDS) from being traded on open and transparent exchanges, which obscured fair price discovery and increased costs for market participants.

The proposed settlement for this case, one of the largest class action antitrust cases in history, includes an agreement from the defendants to pay damages in the aggregate amount of $1.86 billion.

Specifically, the plaintiffs alleged, among other things, that the defendants conspired to block CMDX, a proposed CDS exchange-trading platform backed by the Chicago Mercantile Exchange (CME) and Citadel Investment Group, from becoming operational in 2008.

The suit was a private civil action brought by a combination of plaintiffs including, among others, pension funds, investment firms, and insurance companies. As part of the settlement, the case will be certified as a class action, which will allow over 10,000 market participants to seek recovery based on the volume of CDS traded over the relevant period.

The class includes "all persons who purchased CDS from or sold CDS to the Dealer Defendants, a Released Party, or any purported co-conspirator, in any Covered Transaction" between January 1, 2008 and September 25, 2015. The settlement excludes certain defendants identified in the settlement papers.

The settling defendants, who did not admit fault under the terms of the settlement, include:

Banks will contribute based on CDS market share, which means that J.P. Morgan Chase & Co. will pay roughly $595 million, Morgan Stanley will pay roughly $230 million, and Goldman Sachs Group Inc. will pay roughly $164 million.

In addition to the $1.86 billion in damages, ISDA has agreed to reforms that could increase transparency and competition in the CDS market. ISDA has agreed to:

The US Department of Justice and the European Commission also have ongoing investigations into anticompetitive practices in the CDS market dating back to 2009.

Class members will be able to receive their settlement, once approved, by returning a mail form. Plaintiffs' counsel will obtain the names of eligible participants from the Depository Trust Clearing Corporation (DTCC), a trade repository that holds records of transactions executed in the relevant time period. The timeframe for recovery will be more clear upon court approval of the settlement.

CDS are credit derivatives that act as insurance against the default of a specific target entity or index. If the reference entity fails to make a payment on debt, the buyer of credit protection receives a payment (for more information on CDS, see Practice Note, Credit Derivatives: Overview (US)).