The firm recently obtained a landmark preliminary injunction victory in the Southern District of New York, requiring defendant MarkitSERV to provide swap execution facility (“SEF”) trueEX, LLC with access to MarkitSERV’s post-trade processing platform while trueEX’s case against MarkitSERV proceeds to trial.
The firm was retained by trueEX in May 2017. trueEX is a fintech startup SEF for the trading of interest rate swaps (“IRS”). In addition to executing IRS trades, trueEX provides some post-trade processing services that place it in direct competition with MarkitSERV, the IHS Markit subsidiary that dominates the market for IRS trade processing, with a market share of more than 90%. In particular, MarkitSERV has near-total control over the network for the “straight-through-processing” (“STP”) of trade information to market participants’ back-office books and records, which IRS dealers rely upon to ensure that their trading records always reflect their current risk exposures.
Because the vast majority of market participants rely on MarkitSERV to update their books and records, trueEX cannot process IRS trades without the ability to “drop” a copy (known as a “drop-copy”) of each trade to MarkitSERV’s network, which then sends the details of the trades downstream into end-users’ books and records. If trueEX cannot send such drop-copies of trades, market participants will be unable to automatically update their books and records to account for such trades, and they will therefore stop using trueEX’s platform.
In April 2017, after operating under a services agreement without any interruption for more than five years to provide drop-copy connectivity to trueEX, MarkitSERV moved to terminate the agreement. The firm quickly stepped in and filed a complaint against MarkitSERV asserting a monopolization claim under Section 2 of the Sherman Act based on MarkitSERV’s unilateral refusal to deal with trueEX. In fact, at the precise time of the termination, trueEX’s sister company, truePTS, was emerging as a direct competitor to MarkitSERV. By terminating the agreement and refusing to deal with trueEX and truePTS, the firm alleged that MarkitSERV’s termination was an attempt to eliminate both trueEX and truePTS as competitors in the IRS trade processing market.
With less than 30 days before the termination became effective, the firm filed a preliminary injunction motion to block MarkitSERV from terminating the parties’ services agreement pending determination of the action. The firm argued that MarkitSERV was a monopolist in the market for post-trade swap services and that, regardless of what the contract said, MarkitSERV could not terminate the agreement if its motive was to harm competition.
In a 40-plus page opinion, Judge Kaplan of the Southern District of New York agreed, and entered the preliminary injunction preventing MarkitSERV from barring trueEx’s access to MarkitSERV’s provision of drop-copy services. This victory is especially notable given the challenging landscape for Section 2 claims based on a defendant’s unilateral refusal to deal with a rival following the U.S. Supreme Court’s decision in Verizon v. Trinko. As MarkitSERV pointed out—no court since Trinko has issued an injunction compelling a defendant to cooperate with a competitor—that is, until trueEX’s preliminary injunction was granted.
With this relief, trueEX and its 60 employees, can continue to provide competition and choice within the market for IRS trade processing. The firm is expected to try the case in March 2018.