October 19, 2021 - by Elliot Ganz.  Last week, the LSTA, joining several other financial trade associations, filed a second amicus brief in a California case called McCarthy v. Intercontinental Exchange Inc.   The plaintiffs, individuals who have consumer loans that references US LIBOR, originally moved to halt ICE’s publication of USD LIBOR through a preliminary injunction. They claim that the LIBOR-setting process and the banks’ use of LIBOR as a reference rate is a “per se” violation of the Sherman Act (the federal law regulating antitrust).  The plaintiffs do not allege manipulation of LIBOR; rather they assert that the LIBOR rules themselves are per se unlawful.  The LSTA, together with several other financial trade associations, filed an amicus brief in support of ICE and the defendant banks.  The judge in that case recently held a hearing during which he signaled that while he would deny the preliminary injunction, his preliminary view was that the publication and reliance on LIBOR was, indeed, a per se violation of the Sherman Act.  On October 1^st, ICE and the banks filed a motion to dismiss the claims for failure to state a cause of action under the Sherman Act and the trade associations’ second amicus supports that motion. 

A deep dive into antitrust law and its application to this case is beyond the scope of this article but the issue can be summarized simply.  ICE and the banks believe that this case is entirely without merit.  The setting of LIBOR is not a per se violation of the Sherman act and must be analyzed under the “rule of reason” framework.  Under that framework, a court must balance the procompetitive benefits of the agreement against any anticompetitive effects, “taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint’s history, nature, and effect”.  Under a rule of reason analysis, the use of LIBOR as a reference rate does not violate the Sherman Act.

Even though LIBOR is coming to end, this case is important because the plaintiffs’ theory would seemingly apply equally to SOFR and other replacement rates merely if banks agreed to use them as a reference rate.  However, we believe that this case is completely without merit and that even if the court denies the motion to dismiss, such a decision would not survive an appeal.  Nevertheless, the case must be watched closely and litigated aggressively and the LSTA will continue to vigorously support the defendants.