A lawsuit has been filed in the federal court in Manhattan by three public pension funds against six major banks. In the suit filed by the Iowa Public Employees' Retirement System, Orange County Employees' Retirement System and Sonoma County Employees' Retirement Association, the banks have been accused of collaborating and conspiring to remove competition from the stock lending market.
The accused banks are Bank of America Corporation (BAC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , The Goldman Sachs Group, Inc. (GS - Free Report) , Credit Suisse Group AG (CS - Free Report) , Morgan Stanley (MS - Free Report) and UBS Group AG (UBS - Free Report) .
In the stock lending market, investors can sell a stock without owning it through a process called “short selling". Investors or firms borrow a stock with the help of agents by paying a fee and then sell it first with the expectation of buying it later at a lower price.
Some upstart lending platforms were developed to help various borrowers and lenders interact directly without the use of middlemen.
However, the above mentioned banks have been accused of trying to boycott and hence block the development of such lending platforms over the years. This was done to remove competition from the lending market and thereby charge higher fee from borrowers who wanted to engage in short selling. The act is in violation of the federal antitrust law.
Moreover, in order to prevent borrowers from going to other places in the market to get better prices, the banks had created a lending platform of their own called EquiLend LLC. It is through this platform that the banks have been trying to develop anticompetitive strategies in the market to safeguard their interests.
EquiLend is also a defendant in the case. However, none of the defendants made any comments.
Of the six banks mentioned, UBS Group currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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