Antitrust Compliance Guide for The Fixed Income Investor Network
This guide is designed to assist the members of the Fixed Income Investor Network (“FIIN”) in understanding and complying with U.S. antitrust laws. In addition, it provides guidance on certain securities and lobbying laws that may apply to FIIN’s activities for and/or on behalf of its members. Although the guide sets forth general principles and rules, it is not intended to make you an expert in these laws; rather, its purpose is to enable you to recognize and avoid potential concerns and to seek assistance from legal counsel when appropriate.
II. Antitrust Laws and Enforcement
Antitrust laws protect competition and are enforced by the U.S. Department of Justice and the Federal Trade Commission (together, the “antitrust agencies”). Competition benefits consumers by ensuring lower prices and new and better products. However, when competing businesses get together to agree on prices, to divide business between them, to not compete, or to make other anticompetitive arrangements that provide no benefits to consumers, they can violate the antitrust laws.
The most common antitrust violations result from agreements or arrangements—typically with competitors, customers, or suppliers—that unreasonably restrain competition. Industry group activities, by their nature, are the result of concerted action by competitors. There is no exception under antitrust laws for concerted action conducted under the auspices of a trade association or industry group. If a court or the antitrust agencies find that the activities of the group unreasonably restrain competition, the member entities and individuals may also be subjected to liability, along with the group itself.
A. Key Antitrust Concerns for Trade Associations
Any type of agreement, understanding, or arrangement between competitors—whether written or oral, formal or informal, express or implied—that limits competition is subject to antitrust scrutiny. Moreover, any attempt to reach such an agreement may be unlawful, even if it is unsuccessful.
The antitrust laws are written in broad terms that do not identify all types of unlawful conduct, which gives courts and enforcement agencies flexibility in applying the laws to prohibit conduct that is “unreasonable.” Conduct generally is judged under the “rule of reason,” under which a restraint of trade is determined to be “reasonable” if, overall, it enhances competition to the ultimate benefit of consumers.
However, courts have declared certain conduct to be unlawful “per se,” meaning that it is prohibited absolutely regardless of any claimed justification and without proof of any actual effect on competition. Such “agreements” need not be written or even expressed, but may be inferred from a course of conduct by the parties.
Any agreement with competitors concerning prices, terms of sale, price changes, discounts, credit terms, rebates, special financing, pricing methods, warranties, or any other matter relating to or affecting prices or any element of price is absolutely prohibited. Examples of “per se” illegal agreements may include: an understanding on price ceilings, price ranges, list prices or discounts; an agreement on elements of price or conditions of sale, such as credit terms or delivery terms; an understanding to verify prices or exchange current or future price information; or a joint decision by competing buyers of a product not to purchase from an issuer unless that issuer ceases dealing with a competing seller or agrees to offer the product on specific terms.
To avoid any circumstances in which any improper agreement might be inferred, there should be no communication of any kind involving FIIN or any of its members regarding pricing or other selling terms. Antitrust laws recognize that trade associations like FIIN often promote competition by promoting business and investment activity. However, because trade associations necessarily bring competing businesses together, participants must be mindful of the risk that collaborative activity could lead to, or provide a basis for inferring, agreements which may raise antitrust concerns.
B. Consequences of Antitrust Violations
The principal federal agencies charged with enforcement of the antitrust laws are the Antitrust Division of the Department of Justice and the Federal Trade Commission. They can enforce the antitrust laws through civil proceedings, or, in certain cases, the Antitrust Division may bring a criminal enforcement action against a person or company that violates the antitrust laws. In addition to the federal enforcement agencies, private parties may bring suit for injuries resulting from violations of federal antitrust laws. State Attorneys General also are empowered to bring suit on behalf of their citizens for violations of certain federal antitrust laws.
Antitrust violations can result in criminal and civil liability. If a trade association or its individual members, acting under the auspices of the association, violate antitrust laws it could lead to both civil and criminal penalties for the individuals involved and the organization itself, as well as civil liability to private parties. Individuals that violate antitrust laws could be sentenced to up to 10 years in prison and fined up to $1,000,000. Importantly, the costs and burdens involved in defending a government antitrust investigation can be significant, as can the costs of defending a private antitrust class action, where plaintiffs can seek to recover three times their actual damages as well as their attorneys’ fees.
- III. FIIN and Government Petitions
FIIN members may join together, under its auspices, to discuss issues of concern to the industry and to prepare, adopt, and present positions for action by government agencies. Joint action by competitors to develop and articulate positions to be communicated to the government for the purpose of influencing government action is immune from antitrust prosecution under the “Noerr-Pennington” doctrine, unless it is a “sham” merely intended to interfere with the ability of competitors to compete. To ensure the protection of the Noerr-Pennington doctrine, discussions about proposed government action should occur within the context of FIIN meetings whenever possible.
FIIN and its members should avoid advocating for frivolous government action that is only intended to harm a competitor. For example, FIIN or a member seeking to influence a regulator to pass a regulation that is intended to harm a competitor could be found as a violation of antitrust laws and not protected under the Noerr-Pennington doctrine. Similarly, in the absence of a legitimate pro-competitive concern, FIIN and its members should not engage in filing things like frivolous lawsuits or engaging a government entity with an intent to slow down or impede a competitor’s business. Moreover, if FIIN’s members identify practices or activities that its members believe should be addressed by the government, but those practices raise potential antitrust issues, FIIN should consult antitrust counsel to assist with mitigating potential antitrust risks.
In addition, there are federal lobbying regulations and state lobbying regulations that dictate when advocacy by industry groups qualifies as lobbying. Advocacy like submitting a response to a request for public comment or a public proceeding is not considered lobbying. Similarly, responses required by subpoena, civil investigative demand, or otherwise compelled by statute, regulation, or other acts of Congress do not qualify as a lobbying contact. If FIIN and/or its members plan to engage in lobbying on a state or municipal level, it should seek counsel regarding that specific state or municipality’s lobbying laws.
IV. Identifying Potentially Problematic Conduct and Mitigating Antitrust Risk
Participation in trade associations and related events often provides the opportunity for common antitrust violations. For example, exchanging certain competitively sensitive information, such as prices charged for services rendered, business and marketing plans, negotiation strategy, specific contract terms, pricing, costs, and profits that are not already publicly available, and which is competitively sensitive, can raise antitrust risk. In particular, trading data that directly or indirectly conveys present or future price, or cost information may support allegations of price fixing. Sharing information that is confidential in nature and protected by non-disclosure agreements is similarly problematic. Consequently, all exchanges of sensitive business or confidential information between and among FIIN members, either directly or through FIIN, should be avoided unless approved in advance by FIIN’s counsel.
Antitrust laws prohibit conduct such as: agreeing not to compete or to compete less aggressively; agreeing to consult the members of the association before making a change in pricing, interest rates, or contract terms; agreeing to or suggesting a standard profit margin or fee structure; and agreeing to coordinate on applying pressure on issuers to receive more beneficial terms.
In all FIIN operations and activities, you must avoid any discussions or conduct that might violate the antitrust laws or even raise an appearance of impropriety. Often, the appearance of impropriety could be just as harmful as improper conduct and trigger things like costly government investigations and unnecessary litigation, which can result in large legal bills and government fines. Because FIIN meetings regularly bring together representatives of member firms that are potential or actual competitors, it is important that certain ground rules be followed to eliminate any suspicion that a particular meeting might be used for anticompetitive purposes.
 Competitively sensitive information generally means information that is important to rivalry between competing firms and likely to have an impact on one or more of the dimensions of competition (price, output, quality, and innovation).
Below are some examples of potentially anticompetitive conduct, which should be avoided:
- Disclosing to other FIIN members or discussing pricing and other terms of a future or live deal or disclosing confidential (non-public) documents or information from a current or future deal.
- Discussing with/among FIIN members the non-public pricing or terms of a new or current deal, with the hope that the competitor will use the information to influence deals.
- Agreeing to coordinate or join forces to improve the terms of the offering in response to certain modifications negotiated by senior tranche investors.
- Agreeing to or suggesting to other FIIN members that they coordinate to obtain better pricing or more favorable terms or collectively apply pressure on an issuer or investment bank or acting in furtherance of that goal.
Best Practices for Compliance with Antitrust Laws
Do prepare an agenda, and have FIIN counsel review it before the meeting.
Do have an FIIN staff member attend the meeting.
Do invite legal counsel to attend if the meeting might involve matters having to do with sensitive antitrust subjects.
Do follow the agenda at your meeting, with departures from the agenda only if counsel approves.
Do keep accurate minutes, and have counsel review them before they are put into final form and circulated.
Do not discuss any subjects that might raise antitrust concerns (including prices, market allocations, refusals to deal, and the like) unless you have received specific clearance from counsel in advance. If someone begins discussing a sensitive subject, do not allow the discussion to continue. If the discussion does continue, do not allow the meeting to continue.
Do not discuss or share non-public information that may allow FIIN members to predict another FIIN member’s prices, returns on investments, profit margins, contract terms, strategies with respect to current or future investments or deals, or that may influence FIIN members’ competitive decisions.
Do not discuss current or future prices, returns on investments, or terms or changes to terms, directly or indirectly.
Do not share terms of a confidential agreement with competitors or potential competitors.
Do not discuss how members could get improved terms or better pricing if they worked together or acted similarly.
Do not coordinate how to negotiate with or use combined leverage against an entity in a particular securitization.
Do not suggest prices, terms, fair share, fair profit, or discuss stabilizing prices or terms.
Do not discuss with a competitor specific terms, pricing, or modification of a current live or future deal at FIIN meetings or presentations, especially if the information is not public and may influence competitors’ actions.
Do not facilitate in-person, phone, meeting, or conference discussions among members that fall into any of the above areas of concern.
Hypothetical Scenarios That May Trigger Antitrust and Other Regulatory Concerns
Scenario No. 1:
May a group of FIIN members who are invested in the same tranche of mezzanine asset-backed securities agree to coordinate on their response to a modification of the deal terms by the issuer and/or to band together to convince the issuer to withdraw or adjust these modified terms because it will impact their investment(s)? Does it matter if these FIIN members hold a significant percentage of these mezzanine securities?
This group of FIIN members could risk violating antitrust laws if they work together and use their collective influence to pressure the issuer or bank to withdraw the modification. On the other hand, unilateral negotiations with an issuer are fine. Similarly, if these FIIN members collectively refuse to do future business with this bank or issuer, they could be in violation of antitrust laws. The higher the individual share of the tranche such FIIN members hold, individually or collectively, the higher the antitrust risk.
Scenario No. 2:
May a group of FIIN members host a meeting, conference, or call to discuss a specific sub-type of asset-backed security?
As a general rule, sharing information with the members about the process or general characteristics of this type of security without identifying the issuer, non-public terms of the offering, or discussing how a member plans to negotiate with that issuer, is permitted. However, discussing the non-public terms of a specific security or easily-identified security while it is part of a live deal, could lead to an antitrust violation. Anonymizing the bank, issuer, and security in examples in meetings, conferences, and calls can help reduce the antitrust risk.
Scenario No. 3:
May a FIIN member write an article or blog post on the FIIN website about a specific asset backed security and why certain types of investors should be purchasing these types of securities?
Yes, however, in the post, the author and any contributing members should disclose whether they or their employer has an interest in these securities. The author should stop short of suggesting investing in these securities and just keep the article as objective as possible. The author should also avoid sharing rumors about the security and engaging in information sharing to increase or decrease a security price and not share confidential or inside information about these securities. These types of activities are risky, no matter whether the information is written, verbal, shared in a formal meeting setting, or shared informally. Ultimately, these types of articles can present more risk, considering they are written, recorded, and sometimes public. These articles, blog posts, or emails should be reviewed by counsel before being circulated.
If you are uncertain about whether a potential idea or information you want to share may run afoul of antitrust laws, reach out to antitrust counsel for further advice. Similarly, if you are uncertain whether advocacy you want to engage in would qualify as lobbying, whether you are required to register as a lobbyist, or plan to engage in advocacy on a state or municipal level, reach out to FIIN’s outside counsel for advice.
It is FIIN’s policy to comply fully with federal and state antitrust laws, and members of FIIN must assume individual responsibility for compliance with the antitrust laws. FIIN expects its members to adhere to these guidelines in the context of FIIN activities.