The settlement in principle was disclosed at a hearing before U.S. District Judge Denise Cote in Manhattan.
"We think it's historic," Daniel Brockett, the investors' lawyer, said in an interview. "It's one of the largest antitrust class-action settlements, and an extraordinary result for the class."
The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, HSBC Holdings Plc, JPMorgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG.
Other defendants are the International Swaps and Derivatives Association (ISDA) and Markit Ltd, which provides credit derivative pricing services.
Credit default swaps are contracts that let investors buy protection to hedge against the risk that corporate or sovereign debt issuers will not meet their payment obligations.
The market peaked at $58 trillion in 2007, according to the Bank for International Settlements, but shrank to $16 trillion seven years later as investors better understood its risks.
American International Group Inc's CDS exposure was a major factor behind the 2008 federal bailout of that insurer.
In the lawsuit, investors including the Los Angeles County Employees Retirement Association and Salix Capital US Inc claimed that the defendants' activity caused them to pay unfair prices on CDS trades from late 2008 through the end of 2013, even though improved liquidity should have driven costs down.
They also said the banks tried in late 2008 to thwart the launch of a credit derivatives exchange being developed by CME Group Inc by agreeing not to use new CDS platforms and pushing ISDA and Markit not to provide licenses to the exchange.
An ISDA spokeswoman said the group is "pleased the matter is close to resolution" and committed to helping ensure the safe and efficient functioning of the CDS market.
Representatives for the other defendants declined to comment.
U.S. and European regulators have also examined potential anti-competitive practices in the CDS market.
Investors' lawyer Brockett, a partner at Quinn Emanuel Urquhart & Sullivan, said Cote gave both sides two weeks to iron out details before submitting a settlement for her preliminary approval.
Quinn Emanuel and Pearson, Simon & Warshaw are co-lead counsel for the plaintiffs.
The case is In re: Credit Default Swaps Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-md-02476.
(Reporting by Jonathan Stempel in New York; Additional reporting by Joseph Ax; Editing by Christian Plumb, Alan Crosby and Jonathan Oatis)
By Jonathan Stempel
Stocks treated in this article : BNP PARIBAS
, American International Group Inc
, Citigroup Inc
, JPMorgan Chase & Co.
, Bank of America Corp
, Goldman Sachs Group Inc
, Morgan Stanley
, Deutsche Bank AG
, CME Group Inc
, Credit Suisse Group AG
, Barclays PLC
, Royal Bank of Scotland Group plc
, Markit Ltd
, HSBC Holdings plc
, UBS Group AG