Is forex market controlled by someone? - page 19
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Barclays Fined For Manipulating Price Of Gold For A Decade; Sending "Bursts" Of Sell
It was almost inevitable: a week after we wrote "From Rothschild To Koch Industries: Meet The People Who "Fix" The Price Of Gold" and days after "Barclays' Head Of Gold Trading, And Gold "Fixer", Is Leaving The Bank", earlier today the UK Financial Conduct Authority finally formalized what most in the "tin-foil" hat community had known for years, when it announced that it fined Barclays £26 million for manipulating "the setting of the price of gold in order to avoid paying out on a client order." Furthermore, the FCA confirmed that those inexplicable gold raids which come as if out of nowhere, and slam gold with a vicious force so strong sometime they halt the entire market, had a very specific source: Barclays, whose trader Daniel James Plunkett, born 1976, "sent out a burst of orders aimed at moving the price of the yellow metal."
This took place for a decade. As the FT reports:
Some further details on Plunkett's preferred means of manipulating the gold price.
He did this in an attempt to pull off a “mini puke”, which the FCA took to mean a sharp fall in the price of gold. As a result, the bank was not obliged to make a $3.9m payment to the customer under an option contract.
Which is precisely what we have shown many times here for example in "Vicious Gold Slamdown Breaks Gold Market For 20 Seconds", when a sell order so aggressive comes in it not only takes out the entire bid stack with an intent not for "best execution" but solely to reprice the market lower. Recall from September:
To summarize: a humble block of 2000 gold futs (GC) taking out the bid stack, and slamming the price of gold, managed to halt the gold market: one of the largest "asset" markets in the world in terms of total notional, for 20 seconds.
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"I Am Hoping For A Mini Puke": Details Of Barclays' Gold Manipulation
Curious how and why commercial bank traders manipulate the price of gold? The following detailed narrative from the FCA should answer most lingering questions.
From the FCA Final Notice charging one Daniel James Plunkett
The Digital
On 28 June 2011, Barclays entered into an exotic options contract (the Digital) with Customer A. The Digital was a ‘digital’ option, meaning it had only two potential values: (i) a fixed pay-out to Customer A if the option finished ‘in the money’; or (ii) no pay-out if the option finished ‘out of the money’. In order to determine whether a digital option finishes in or out of the money, reference is usually given to the price or level of an agreed investment or benchmark on a specified date, known as the observation date.
The Digital had a notional amount of approximately USD43m and upon the signing of the contract, Customer A paid a premium of 8.18% of the notional value, USD4.4m, to Barclays, of which a proportion was attributed as a profit to Mr Plunkett’s book. The Digital had two observation dates, 28 June 2012 and 20 June 2013, and referenced the price fixed during the 3:00 p.m. Gold Fixing on each of these dates.
Under the terms of the Digital, if the price fixed in the 28 June 2012 Gold Fixing exceeded USD1,558.96, the Barrier, a payment of 9% of the notional amount, or approximately USD3.9m, would accrue to Customer A. If the price fixed during the 20 June 2013 Gold Fixing exceeded USD1,633.91, a payment of 18% of the notional amount would accrue to Customer A, less any accrued percentage payment related to the 28 June 2012 Gold Fixing.
The Digital was sold to Customer A by Barclays’ Sales Desk. Mr Plunkett was responsible for pricing and managing Barclays’ risk on the Digital. He was therefore aware of the terms of the Digital. The Digital referenced the price of gold fixed in the 3:00 p.m. Gold Fixing on 28 June 2012. As described [...] above, the terms provided that if the price fixed above USD1,558.96 (the Barrier) then Barclays would be required to make a USD3.9m payment to Customer A. Part of this payment would be attributed to Mr Plunkett’s book. If, however, the price of gold fixed below the Barrier, then Barclays would not have to make the USD3.9m payment to Customer A and a percentage of this additional profit would be attributed to Mr Plunkett’s book.
Mr Plunkett’s trading during the 28 June 2012 Gold Fixing
Mr Plunkett was aware that the Digital was the main risk exposure he had to manage on 28 June 2012. On the evening of 27 June 2012, Mr Plunkett sent an email summarising his risk exposures to other members of the Commodities business area, including members of the Precious Metals Desk, stating that the Digital was his “main event” for 28 June 2012 and that he was hoping for “a mini puke to 1558 for fixing”. The Authority understands the phrase “mini-puke” used by Mr Plunkett to have meant a drop in the price of gold ahead of the 28 June 2012 Gold Fixing – the price in the 3:00 p.m. 27 June 2012 Gold Fixing had fixed at USD1,573.50 and COMEX Gold futures were trading at approximately USD1,577.50 at the time of his email. Mr Plunkett repeated this sentiment on the morning of 28 June 2012, stating to a colleague “hopefully we fix 1558, or 1558.75 ideal”.
At the start of the 28 June 2012 Gold Fixing at 3:00 p.m., the Chairman proposed an opening price of USD1,562.00. However, the proposed price quickly dropped to USD1,556.00, following a drop in the price of August COMEX Gold Futures (which was caused by significant selling in the August COMEX Gold Futures market, independent of Barclays and Mr Plunkett). The proposed price in the 28 June 2012 Gold Fixing then rose, eventually fixing at USD1,558.50 at 3:10 p.m.
At 3:06 p.m., shortly after the Chairman had increased the proposed price to USD1,558.50, Mr Plunkett, who had not placed any previous orders during the Gold Fixing, placed a large sell order of between 40,000 oz. (100 bars) and 60,000 oz. (150 bars), with Barclays’ representative on the Gold Fixing. This order was incorporated by Barclays’ representative into Barclays’ net position, which led to Barclays declaring itself to be a seller of 52,000 oz. (130 bars).
The purpose of Mr Plunkett’s order was to decrease the likelihood of the proposed price rising further (above the Barrier) and to increase the likelihood that the price would fix at USD1,558.50 (below the Barrier).
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Caught Red-Handed: This Is What Zoomed In Gold Manipulation Looks Like
Now that gold manipulation is no longer conspiracy theory and has joined every other "tinfoil" narrative into the realm of conspiracy fact, we urge readers to catch up on both what was the story of the day, namely the UK regulator cracking down on exactly one (1) Barclays trader for manipulating the gold price in a way that prevented him from paying out a substantial fee to his counterparty (and also being the absolutely only person in all of Barclays and every other bank to manipulate gold, of course), as well as reading the full explanation of just how said manipulation was conducted.
Failing that, one can simply observe the following pretty charts catching Daniel James Plunkett smashing the price of gold, which apparently in the UK is called a "mini puke", red-handed in the act of what is now confirmed gold manipulation.
Courtesy of Nanex, the charts below show the active Gold Futures contract on June 28, 2012 during the London afternoon gold fixing (3pm London time, 10am Eastern Time), which is when we now know the Barclays trader intentionally manipulated the price lower.
1. August 2012 Gold (GC) Futures trades and quote spread over a 5 second period of time (10:00:21 to 10:00:26 Eastern).
The important London gold fix price was $1558.96 which is near the middle of the price on this chart. Approximately 1,100 contracts were traded during the sudden price drop.
JPMorgan Lied To Fed, Did Not Report Losing Trades Whistleblower Charges
Long before Virtu was forced to pull its IPO due to the backlash against HFT frontrunners in party due to being stupid enough to post its perfect trading record of 1 trading day loss in 5 years which could only be the result of a grossly rigged market, we pointed out that another entity, one having little in common with your garden variety HFT parastie, namely JPMorgan, had a 2013 trading record which could be summed up on one word only: perfection.
Yet while one could simply attribute the same kind of market rigging to JPM as one can (and should) to the average hi-freak, it seems there may be more here than meets the eye so used to seeing manipulation everywhere it looks.
According to Australia's Sydney Morning Herald, "a technical support person who worked for JP Morgan in Australia claims the bank regularly misled its New York parent and the US Federal Reserve by failing to report losing trades."
If nothing else, and if the whistleblower's allegations are proven true, it will certainly explain JPM's trading perfection: because when one excludes the "losing trades" from one trading record, it is rather easy to end up with nothing but trading wins.
SMH reports that the "explosive" allegations are contained in a submission by the person to the Senate inquiry into the performance of the Australian Securities and Investments Commission.
It certainly wouldn't be the first time a disgruntled whistleblower has spoken up against his former employer (especially with a delay as substantial as this one), but in this case this may be more than just someone seeking to recoup compensation from an untimely termination: "Business Day has met the person and agreed to allow him to remain anonymous. He appears to be credible. The person complained to ASIC and later went to work for the regulator, but he said the regulator failed to investigate his claims."
Credible or not, JPM promptly denied everything:
A spokesman for JP Morgan denied the allegations. "The claims are false and misleading," he said.
Or, as Jamie Dimon would call it, a "tempest in a teapot. Some more from SMH on just how JPM was violating regulations, and of course, the law:
In his submission, published by the inquiry, the person said he was employed at the Sydney office of JP Morgan between 2004 and 2007. He worked for a team involved in the post-trade management of the bank's OTC (over the counter) equity derivative business for the Asia-Pacific region.
In 2007, before the global financial crisis, he became increasingly concerned by "certain practices that appeared to circumvent regulatory commitments and risk management expectations," he said.
These included:
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Twelve major banks seek dismissal of forex price-rigging lawsuit
Twelve major banks asked a U.S. judge on Friday to throw out a consolidated antitrust lawsuit accusing them of colluding to rig prices in the $5 trillion-a-day foreign exchange market, saying the plaintiff investors had failed to properly allege the existence of a conspiracy.
Investors, including the city of Philadelphia and a number of hedge funds and pension funds, accused the banks of conspiring since January 2003 to manipulate the WM/Reuters Closing Spot Rates, using chat rooms, instant messages and email.
The defendants - 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 - filed a joint motion to dismiss the case on Friday in U.S. District Court in Manhattan.
"Despite their breathtaking scope, the complaints do not plead a single fact about a single instance in which a single defendant engaged in even one concerted act to manipulate any particular currency rate," the banks wrote. "Nor do they identify a single transaction by a plaintiff or any factual basis for a claim that any plaintiff has been injured by an alleged conspiracy to manipulate benchmark exchange rates."
The banks also asserted that the theory underlying the conspiracy allegations "makes no economic sense." Any attempt to inflate one currency artificially would deflate the relative value of other currencies against which it is traded, the banks argued, and dealers cannot know in advance which currencies they will be buying or selling each day.
Christopher Burke, one of the lead lawyers for the plaintiffs, declined to comment immediately on Friday.
The case is proceeding against a backdrop of civil and criminal probes worldwide into whether banks rigged prices to boost profit at the expense of customers and investors.
The 12 defendants have an 84 percent global market share and serve as counterparties in 98 percent of U.S. spot volume, according to the lawsuit.
In their complaint, the investors said employees of the defendants used such names as The Cartel, The Bandits' Club and The Mafia to swap confidential customer orders and trading positions and colluded to set prices through such tactics as "front running/trading ahead," "banging the close" and "painting the screen."
U.S. District Judge Lorna Schofield is overseeing the litigation.
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U.K.’s Osborne Preparing to Bolster Oversight of FX Market
U.K. Chancellor of the Exchequer George Osborne is preparing to announce plans to boost oversight of the foreign exchange market following allegations traders colluded to manipulate the $5.3 trillion-a-day market.
The measures are being considered in conjunction with the Financial Stability Board, according to a government official who asked not to be identified. The plans are likely to be announced within the next two weeks, the official added. Osborne will give his annual speech to bankers on June 12.
With a year to go before a general election, he is seeking to show the government is cracking down on potential abuses in financial markets after a series of scandals. More than a dozen regulators on three continents are reviewing whether traders colluded to rig the currency market, while nine firms have been fined more than $6 billion for manipulating the London interbank offered rate, a rate used to price more than $300 trillion of contracts from student loans to mortgages.
“A key part of the government’s long-term plan is building stronger and safer banks,” the Treasury said in an e-mailed statement today. “Ensuring confidence in the fairness and effectiveness of financial markets is central to this, which is why we’ve taken action to reform Libor, and why we’re now using the lessons we have learned here to inform and shape the important ongoing global debate on benchmark reform.”
Iosco Guidelines
Global regulators have been working on tougher oversight of benchmarks since the Libor scandal. The International Organization of Securities Commissions, a Madrid-based group that harmonizes global market rules, published guidelines last year that said banks must tackle conflicts of interests in setting rates.
The FSB, a group of global regulators and central bankers, led by Bank of England Governor Mark Carney, opened a review of foreign-exchange benchmarks in February. The group appointed to review the rate-setting process will present its findings later this year.
The Financial Conduct Authority, the U.K.’s markets regulator, and other regulators are probing the WM/Reuters rates, which are published hourly for 160 currencies and half-hourly for the 21 most-traded. They are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour. Rates for less-widely traded currencies are based on quotes during a two-minute window.
Libor Oversight
At least 10 banks have handed over evidence to the FCA, Martin Wheatley, the regulator’s chief executive officer, told lawmakers in February. He called the allegations of manipulation of FX rates “as bad as Libor.”
Under the Iosco guidelines, firms involved in benchmark-setting will have to increase oversight of their employees who set the rates. Organizations in charge of administrating rates will be responsible for verifying the accuracy of the data they receive from banks and other market participants, and ensuring it is based on data from actual trades as much as possible, Iosco said.
Libor came under the FCA’s remit in April 2013 after a government review recommended stripping the British Bankers’ Association of its responsibility for the benchmark. IntercontinentalExchange Group Inc. took over its administration this year. Currency rates are also likely to come under supervision, two people familiar with the matter said a year ago.
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Ex-Goldman director Gupta loses bid to stay out of prison
Former Goldman Sachs Group Inc director Rajat Gupta has failed to persuade the U.S. Supreme Court to delay the June 17 start of his two-year prison term while he pursues an appeal of his insider trading conviction.
Gupta, also a former global managing director of the consulting firm McKinsey & Co, had asked the country's highest court for permission to stay free during his appeal, after the 2nd U.S. Circuit Court of Appeals in Manhattan on May 30 denied him the same request.
Justice Ruth Bader Ginsburg, who handles emergency applications from the 2nd Circuit, on Wednesday denied Gupta's request to stay out of prison.
The full 2nd Circuit has yet to decide whether to rehear Gupta's appeal of his conviction, which a three-judge panel of that court upheld on March 25.
Gary Naftalis, a partner at Kramer Levin Naftalis & Frankel who represented Gupta, declined to comment. Seth Waxman, a WilmerHale partner and former U.S. solicitor general, is also among Gupta's lawyers.
Gupta, 65, is the highest-ranking corporate official to be convicted in the government's multi-year probe of insider trading in the hedge fund industry.
A Manhattan federal jury in June 2012 convicted him of passing tips about Goldman, including news about its results and a $5 billion investment from Warren Buffett, to his friend Raj Rajaratnam, founder of the Galleon Group hedge fund firm.
In appealing his conviction, Gupta is challenging the use of wiretap evidence and the jury instructions.
Gupta's lawyers have said the appeal is likely to result in a reversal of the conviction and a new trial.
The trial judge, Jed Rakoff, has agreed to recommend that Gupta be assigned to a medium-security prison in Otisville, New York, about 70 miles (113 km) northwest of New York City.
Rajaratnam is serving an 11-year prison term after his 2011 insider trading conviction, in a case also built with wiretap evidence. He is appealing his conviction to the Supreme Court.
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Benchmark Riggers to Face Jail in Planned U.K. Law Shift
Traders who manipulate currency rates or borrowing costs could face criminal charges under plans to be announced by Chancellor of the Exchequer George Osborne in a crackdown on bankers less than a year before a general election.
The government is poised to extend laws criminalizing Libor-manipulation to gauges used in foreign-exchange, fixed-income and commodity markets, according to a statement released by the Treasury before Osborne and Bank of England Governor Mark Carney speak at London’s Mansion House today. The measures are part of a review by the Treasury, BOE and the Financial Conduct Authority into how financial markets operate.
“Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy,” Osborne will say, according to the statement. “I am going to deal with abuses, tackle the unacceptable behavior of the few and ensure that markets are fair for the many who depend on them.”
The measures follow scandals that roiled the country’s financial industry. Regulators on three continents are probing allegations traders sought to rig the $5.3 trillion-a-day currency market, while concern is growing that other benchmarks such as the London gold fixing may be vulnerable to abuse. So far, at least nine firms have been fined more than $6 billion for manipulating the London interbank offered rate, with the investigation yet to finish.
Libor is calculated by a daily poll that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. Traders sought to manipulate the benchmark for profit by making artificially high or low submissions to influence the final rate.
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Executive of French bank leaves amid US probe
A top executive at French bank BNP Paribas is leaving the company amid a trans-Atlantic dispute over a potential multi-billion-dollar U.S. fine for the bank’s activities in Iran, Sudan and Cuba.
The bank said Thursday that Chief Operating Officer Georges Chodron de Courcel will retire in September. He is 64, and his term was to finish in 2016. The bank did not explain the reason for his departure.
French and U.S. media reports have said that U.S. banking regulators sought the departure of Chodron de Courcel and other executives as part of an investigation into BNP Paribas. The probe focuses on the bank’s currency transactions through its New York office for clients in Iran, Sudan and Cuba in violation of U.S. trade sanctions.
The case has angered French authorities.
U.S. to sue Citigroup over faulty mortgage bonds
The U.S. Department of Justice is preparing to sue Citigroup Inc (C.N) on charges that the bank defrauded investors on billions of dollars worth of mortgage securities in the run-up to the financial crisis, after talks to resolve the probe broke down, people familiar with the matter said on Friday.
A lawsuit could be filed in U.S. District Court in Brooklyn as early as next week, the people said, as the bank and civil prosecutors stood far apart in reaching an agreement on the size of any deal.
The settlement negotiations had involved penalty numbers of $10 billion or more, another person familiar with the talks said.
Bloomberg News reported earlier on Friday that the Justice Department had asked the bank to pay more than $10 billion, and that the bank had offered less than $4 billion.
Citigroup shares were down 1.7 percent in New York trading following the report.
A Citigroup spokesman declined to comment. Robert Nardoza, a spokesman for the U.S. attorney for the Eastern District of New York, declined comment.
The developments come as the Justice Department is preparing a similar lawsuit against Bank of America's (BAC.N) Merrill Lynch unit, after discussions over a $12 billion to $17 billion settlement did not produce an agreement.
The $10 billion figure for Citigroup was greeted with disbelief by some on Wall Street because the bank had marketed fewer mortgage securities than did some other banks.
Fred Cannon, an analyst at Keefe, Bruyette & Woods, said in a research note that he estimates Citigroup may have to pay $6 billion to reach a deal with the Justice Department, which could exceed the bank's legal reserves and require it to record additional expenses this year. Citigroup’s share price likely already reflects a $3 billion addition to reserves, he said.
While Wall Street analysts base settlement estimates on the dollar amount of the securities banks sold, it is much harder for them to know if prosecutors have evidence that a bank was especially egregious in packaging poor quality loans and marketing the instruments as safe, and arguably should have to pay more than other banks. Prosecutors also consider the level of banks' cooperation in investigations and other factors.
Reuters reported in December that the Justice Department was preparing a civil fraud lawsuit against the bank that alleged investors lost tens of billions of dollars on the securities at issue.
U.S. attorney's offices in Brooklyn and Colorado have been investigating the bank as part of a larger task force probing faulty mortgage securities that helped fuel the housing bubble in the mid-2000s and contributed to its collapse.