NEW YORK (Reuters) - Jefferies Group Inc JEF.N has sued Nasdaq OMX Group Inc (NDAQ.O) to recover tens of millions of dollars of alleged losses from being fraudulently induced to enter interest rate swap futures contracts.
In its complaint, Jefferies said Nasdaq’s majority-owned International Derivatives Clearing Group (IDCG) unit repeatedly misrepresented that the contracts were “economically equivalent” to similar transactions handled over the counter.
Instead, Jefferies said that the transactions were not similar, and that IDCG let an unnamed counterparty take advantage by setting market prices at levels that were not economically equivalent to the OTC swaps.
Jefferies said the contracts were handled through an open clearinghouse created in December 2008, shortly after the global financial crisis began, in an effort to improve the transparency of swaps contracts.
The swaps contracts at issue were valued at $150 million, and the counterparty is DRW Trading Group, a Chicago-based trading firm, a person familiar with the matter said.
According to Jefferies, a New York-based investment bank and broker-dealer, the defendants “did nothing and stood by” as their actions caused Jefferies to suffer “tens of millions of dollars in losses.”
Jefferies is seeking compensatory and punitive damages for Nasdaq’s alleged aiding and abetting of fraud, breach of contract and other wrongdoing, according to its complaint filed Friday with the New York State Supreme Court in Manhattan.
Nasdaq OMX spokesman Frank DeMaria said that the company followed its rules and its contractual obligations to Jefferies, and that the Commodity Futures Trading Commission has told Jefferies as much. “Therefore, the suit is without merit, and we will vigorously defend against it,” he said.
Jefferies declined to comment beyond the complaint itself. DRW was not immediately available.
Nasdaq, a transatlantic exchange operator, took a controlling stake in IDCG late in 2008. Positions can be cleared as both swaps in the OTC account class or as futures, IDCG says on its website.
Larger clearinghouses run by London’s LCH.Clearnet and Chicago’s CME Group Inc (CME.O) are also battling for a piece of the estimated $350 trillion interest-rate swaps market.
Lawmakers and regulators are forcing much of the OTC market through clearinghouses such as IDCG to reduce the potential for another global financial crisis.
Jefferies is expected on Tuesday to announce results for its fiscal third quarter ended August 31.
In afternoon trading, Nasdaq OMX shares were down 71 cents at $24.56, and Jefferies shares were down 72 cents at $14.07.
The case is Jefferies & Co v. Nasdaq OMX Group Inc, New York State Supreme Court, New York County, No. 652560/2011.
Reporting by Jonathan Stempel and Jonathan Spicer in New York, editing by Gerald E. McCormick