Europe launches investigation over derivatives

There's more than enough blame to go around for the global economic crisis.

But it's a safe bet that derivatives have come in for a large part of the world's ire since the end of 2008.

These complex finanacial instruments — which at their simplest allow one party to transfer risk to another — made the crisis much worse by adding a level of confusion about who owed who what as financial markets plunged, credit dried up, and economic growth worldwide ground to a halt.

So it's not too surprising that derivatives have been the focus on much suspicion and regulatory attention since then.

You can now add the European Union to that list.

Europe's antitrust regulators today announced two investigations into the market for credit default swaps, one part of the $600 trillion global derivatives market.

Some of the world's largest banks — including JPMorgan, Citigroup, UBS, Goldman Sachs, Barclays and others — are part of the investigations.

At issue is whether a handful of these giant financial institutions prevented other firms from competing in this market, throwing a wrench into the efficient operation of global markets.

“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” EU antitrust commissioner Joaquin Almunia, said in a statement today. “I hope our investigation will contribute to a better functioning of financial markets and, therefore, to more sustainable recovery.”

The U.S. Justice Department has also looked into this market and has been in contact with the EU about these latest investigatons, according to the New York Times.

European regulators could reportedly fine the banks up to 10 percent of their global annual sales.

Stay tuned.