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 (>> Bank of America Corp), Barclays Plc (>> Barclays PLC), BNP Paribas SA (>> BNP PARIBAS), Citigroup Inc (>> Citigroup Inc), Credit Suisse Group AG (>> Credit Suisse Group AG), Deutsche Bank AG (>> Deutsche Bank AG), Goldman Sachs Group Inc (>> Goldman Sachs Group Inc), HSBC Holdings Plc (>> HSBC Holdings plc), JPMorgan Chase & Co (>> JPMorgan Chase & Co.), Morgan Stanley (>> Morgan Stanley), Royal Bank of Scotland Group Plc (>> Royal Bank of Scotland Group plc) and UBS AG (>> UBS Group AG).

Other defendants are the International Swaps and Derivatives Association and Markit Ltd (>> 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 (>> American International Group Inc) CDS exposure was a major factor behind the 2008 federal bailout of that insurer.

In the lawsuit, investors led by 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 (>> CME Group Inc) by agreeing not to use new CDS platforms and pushing ISDA and Markit not to provide licenses to the exchange.

Spokespeople for 11 of the 14 defendants declined to comment. Credit Suisse, RBS and ISDA did not immediately respond to requests for comment.

U.S. and European regulators have also examined potential anti-competitive practices in the CDS market.

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 and Alan Crosby)

By Jonathan Stempel