Banks agree near $500mn settlement in stock-lending lawsuit

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Goldman Sachs, Morgan Stanley, JPMorgan Chase and UBS have agreed to pay almost $500mn to settle a long-running lawsuit alleging they violated antitrust laws by blocking efforts to modernise the opaque $2.7tn stock lending market.

In a settlement announced on Wednesday, the banks will pay $499mn to a class of investors led by several US pension funds from Iowa, Los Angeles, Orange County and Sonoma County. 

EquiLend, an industry-owned platform for electronic securities lending and borrowing, was also part of the settlement. Credit Suisse agreed to pay $81mn in 2022 to settle the case. The action is ongoing against Bank of America, another defendant.

As part of the settlement EquiLend “has agreed to specific reforms to prevent the sort of collusion and market abuse that occurred in this case as well as to provide co-operation with the ongoing lawsuit against Bank of America”, lawyers for the plaintiffs said in a statement.

EquiLend said it “vigorously denies any wrongdoing in this matter but is pleased to have reached a resolution and reaffirms its commitment to seamless day-to-day business operations for our clients”. It said the settlement “will not have an impact on our business”.

JPMorgan, Goldman Sachs, Morgan Stanley and UBS declined to comment, as did Bank of America.

The case started in 2017 when the plaintiffs filed a lawsuit in Manhattan federal court alleging that the banks had colluded to obstruct the development of exchanges such as AQS in the US and SL-x in Europe, which could potentially have helped lower the cost of borrowing stock for lenders and borrowers.

Securities lending is the practice of institutional investors loaning assets to each other for a fee. Borrowers tend to be hedge funds, investment banks and broker-dealers.

EquiLend was launched in 2002, started by several banks including Goldman, JPMorgan, Morgan Stanley, UBS, Lehman Brothers and Merrill Lynch, now owned by BofA. 

The plaintiffs claimed that the banks had boycotted investors who borrowed from other platforms, while also attempting to mothball the progress of upstart exchanges by buying their underlying intellectual property and shelving it. 

The plaintiffs alleged this left them trapped “in an antiquated market structure and forced them to pay supracompetitive ‘spreads’ to the defendant banks for their role as intermediaries in the stock loan market”. 

“We’re very pleased to have partially settled this case and had such an impact on how EquiLend operates. We are looking forward to continuing to hold Bank of America accountable as the case progresses,” said Michael Eisenkraft, partner at Cohen Milstein Sellers & Toll, one of two firms which represented the plaintiffs alongside Quinn Emanuel.