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CDS interdealer brokers fined for discussing fees
US regulator Finra announced that it has fined eight credit derivative interdealer brokers and suspended them temporarily from working in the industry for breaking rules on discussing fees with each other in 2005 and 2006. Three brokers at Phoenix Partners - Jon Lines, Wesley Wang and Marcos Brodsky – as well as Thomas Lewis and Matthew Somers of Chapdelaine, John Tompkins at CreditTrade, Tullett’s Michael Jessop and Eric Ridder at Creditex were named in the announcement. All except Wang and Brodsky are now at different firms.
Finra says that the brokers tried to “improperly influence other interdealer brokerage firms and their employees regarding brokerage fees and rate reductions”. Specifically, it said the brokers started to discuss fee levels after dealers sought to renegotiate their brokerage fees. The traders sent out schedules of their proposed brokerage fee reductions to various interdealer brokers.
All the individuals agreed to settle with Finra without admitting or denying the allegations.
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Structured
Issuers
CFlux secondary
CLO index levels:
| Index | 21 May |
|
| CFlux USD AAA | ↑ | 96.2 |
| CFlux USD AA | ↑ |
88.3 |
| CFlux USD A | ↓ | 84.1 |
| CFlux USD BBB | ↓ | 75.3 |
| CFlux USD BB | ↓ |
74.1 |
| CFlux USD EQ | ↑ | 77.5 |
Rules are rules, and if the brokers broke the rules then they should pay the penalty. But it is also hard to feel sorry for the dealers that were the alleged victims here. Interdealer brokerage is hardly a natural monopoly. On the contrary there often seem to be a dozen brokers serving every credit default swap trader. We understand that this investigation started after a tip-off from within one of the brokers. It is certainly hard to see any dealer wanting to open this can of worms. We are sure that all involved will be glad to see the case closed.