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UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge
UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge.
The last time the FT penned an article on the topic of gold manipulation, titled “Gold price rigging fears put investors on alert” it was promptly taken down without much (any) of an explanation. Luckily, we recorded the article for posterity here. Earlier today, another article on the topic appears to have slipped through the cracks of the distinguished editors of the financial journal that enjoys the ad spend of the status quo, when it reported that “Gold pricing scrutiny widens”, hardly an update that will take the world by storm, however it is notable that “even” the FT, where for years goldbugs claiming gold manipulation had been ridiculed, is finally start to admit the glaringly obvious.
In this case, the FT looks at one of the most habitual and recidivist manipulators of practically every asset class that the market has ever known, Swiss bank UBS, better known as the rat that isallegedly perfectly happy to expose all other manipulators in exchange for immunity, and focuses on the Friday’s admission by UBS in its 2013 annual report: “that a review of its foreign exchange operations has been widened to include its precious metals business. In the report, the Swiss bank said: “Following an initial media report in June 2013 of widespread irregularities in the foreign exchange markets, UBS immediately commenced an internal review of its foreign exchange business, which includes our precious metals business.”
And while it was recently revealed that there has been unprecedented collusion and rigging of gold at the time of the London fix, the latest revelations confirms that the inquiry is going beyond merely what the venerable five member banks of the London Gold Market Fixing Ltd, on the premises of N M Rothschild & Sons: after all UBS is not part of this particular criminal syndicate, which at last check included Barclays, Deustche (soon to be replaced by Standard Bank which is merely a front for China’s ICBC), Bank of Nova Scotia, HSBC and SocGen.
More from the FT:
“A number of authorities also are reportedly investigating potential manipulation of precious metal prices. UBS has taken and will take appropriate action with respect to certain personnel as a result of its ongoing review.”
UBS has been in front of its peers in revealing important details about various regulatory probes – most notably the rigging of Libor and other interbank lending rates.
Until Friday the bank had not mentioned its precious metals business was included in its review of trading practices. There was, for example, no mention of the metals business alongside fourth-quarter results a month ago.
But before anyone gets too excited, let’s recall that the last time the CFTC did an “in depth” investigation of manipulation in precious metals, it found… nothing (however, according to Bart Chilton that was only due to the zero or negative budget allotted to the impotent regulator, until recently headed by a Goldmanite). Perhaps this time will be different, and suddenly it may be in someone’s interest to finally see gold trade up to its fair value, whatever that may be, although certainly higher than the current prevailing beaten down prices, which have seen China buy up unprecedented amounts of physical gold courtesy of manipulated paper supply and demand. Especially supply.
Better yet: we look forward to learning all about it by the staunch defender of fair and efficient gold markets, the FT. Which is why, just in case, we have saved this article too. You never know when the FT will pull down this article or that, simply for breaching the taboo topic of gold price manipulation, something the Bank of England we are confident, will be very interested in as well.
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UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge
UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix | Zero Hedge.
The last time the FT penned an article on the topic of gold manipulation, titled “Gold price rigging fears put investors on alert” it was promptly taken down without much (any) of an explanation. Luckily, we recorded the article for posterity here. Earlier today, another article on the topic appears to have slipped through the cracks of the distinguished editors of the financial journal that enjoys the ad spend of the status quo, when it reported that “Gold pricing scrutiny widens”, hardly an update that will take the world by storm, however it is notable that “even” the FT, where for years goldbugs claiming gold manipulation had been ridiculed, is finally start to admit the glaringly obvious.
In this case, the FT looks at one of the most habitual and recidivist manipulators of practically every asset class that the market has ever known, Swiss bank UBS, better known as the rat that isallegedly perfectly happy to expose all other manipulators in exchange for immunity, and focuses on the Friday’s admission by UBS in its 2013 annual report: “that a review of its foreign exchange operations has been widened to include its precious metals business. In the report, the Swiss bank said: “Following an initial media report in June 2013 of widespread irregularities in the foreign exchange markets, UBS immediately commenced an internal review of its foreign exchange business, which includes our precious metals business.”
And while it was recently revealed that there has been unprecedented collusion and rigging of gold at the time of the London fix, the latest revelations confirms that the inquiry is going beyond merely what the venerable five member banks of the London Gold Market Fixing Ltd, on the premises of N M Rothschild & Sons: after all UBS is not part of this particular criminal syndicate, which at last check included Barclays, Deustche (soon to be replaced by Standard Bank which is merely a front for China’s ICBC), Bank of Nova Scotia, HSBC and SocGen.
More from the FT:
“A number of authorities also are reportedly investigating potential manipulation of precious metal prices. UBS has taken and will take appropriate action with respect to certain personnel as a result of its ongoing review.”
UBS has been in front of its peers in revealing important details about various regulatory probes – most notably the rigging of Libor and other interbank lending rates.
Until Friday the bank had not mentioned its precious metals business was included in its review of trading practices. There was, for example, no mention of the metals business alongside fourth-quarter results a month ago.
But before anyone gets too excited, let’s recall that the last time the CFTC did an “in depth” investigation of manipulation in precious metals, it found… nothing (however, according to Bart Chilton that was only due to the zero or negative budget allotted to the impotent regulator, until recently headed by a Goldmanite). Perhaps this time will be different, and suddenly it may be in someone’s interest to finally see gold trade up to its fair value, whatever that may be, although certainly higher than the current prevailing beaten down prices, which have seen China buy up unprecedented amounts of physical gold courtesy of manipulated paper supply and demand. Especially supply.
Better yet: we look forward to learning all about it by the staunch defender of fair and efficient gold markets, the FT. Which is why, just in case, we have saved this article too. You never know when the FT will pull down this article or that, simply for breaching the taboo topic of gold price manipulation, something the Bank of England we are confident, will be very interested in as well.
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Banks Aid U.S. Forex Probe, Fullfilling Libor Accords – Bloomberg
Banks Aid U.S. Forex Probe, Fullfilling Libor Accords – Bloomberg.
UBS AG’s signage is displayed outside the company’s Finsbury Avenue offices in London…. Read More
Banks bound by cooperation agreements in an interest-rate rigging probe are providing a windfall of information to U.S. prosecutors investigating possible currency manipulation, according to a Justice Department official and a person familiar with the matter.
“We’ve seen tangible, real results,” Mythili Raman, the acting head of the Justice Department’s criminal division, said in an interview. The cooperation “expanded our investigations into the possible manipulation of foreign exchange and other benchmark rates,” said Raman, who declined to name the banks or comment further on the probe.
The accords have compelled some lenders to conduct internal examinations of their foreign-exchange businesses and share findings with the Justice Department, speeding the government’s criminal probe into the $5.3 trillion-a-day market, according to a person with knowledge of the investigation.
Some banks are handing over lists of potential witnesses, making employees available for interviews and giving up documents without subpoenas, said the person, who asked not to be identified because the inquiry is confidential. Investigators are holding weekly and sometimes daily phone calls with the banks, the person said.
UBS AG (UBSN), Barclays Plc (BARC) and Royal Bank of Scotland Group Plc resolved a Justice Department investigation into how the London interbank offered rate, or Libor, was set, paying more than $800 million in criminal fines and penalties and agreeing to cooperate in other inquiries. The three lenders are among the largest currency traders in the world.
Dominik von Arx, a spokesman for UBS, Nichola Sharpe at Barclays and Sarah Small at RBS, declined to comment.
Libor Probe
Rabobank Groep, which also paid the U.S. a $325 million criminal penalty to settle Libor-rigging allegations in a deferred-prosecution agreement, doesn’t rank among the top 20 currency traders in the world, according to Euromoney Institutional Investor Plc. (ERM)
“Rabobank fully cooperates with regulators pursuant to the deferred-prosecution agreement,” Roelina Bolding, a spokeswoman for the Utrecht, Netherlands-based firm, said in an e-mail. “Rabobank does not otherwise comment on pending investigations of Rabobank or of any other person or entity.”
In addition to the settlements with the four banks, the U.S. Libor probe, which is continuing, has led to criminal charges against eight individuals.
Without the cooperation agreements, the banks would have been less motivated to come forward about currency trading, said Laurie Levenson, a professor at Loyola Law School in Los Angeles.
“I don’t think they would have as much incentive and you’d have pushback from individuals at the bank who are saying ‘Why are we doing this?’” Levenson said in an interview. “‘This is our own business and we’re being overly cautious.’”
Cooperation Agreements
The cooperation agreements also allow the government to advance the probe without overtaxing law enforcement resources, which have been stretched by budget cuts, hiring freezes and furloughs in recent years. In addition to the Justice Department’s criminal and antitrust divisions, European Union antitrust regulators, the U.K. Financial Conduct Authority and the Swiss Competition Commission are probing rigging of currency benchmarks. The Federal Reserve also is examining the matter, Bloomberg reported earlier this month.
“You could be talking about potentially millions of e-mails and thousands of hours of tape,” said Douglas Tween, a former Justice Department lawyer, now at law firm Baker & McKenzie LLP in New York.
The Justice Department “doesn’t have the resources to cull through all of that times 10 banks or 20 banks. They really to a large extent rely on the banks to cooperate and essentially give them all this evidence on a silver platter.”
Financial Benchmarks
Authorities around the world are investigating alleged abuse of financial benchmarks by companies that play a central role in setting them. Other rates under investigation include the ISDAfix, used to determine the value of interest-rate derivatives. European and U.S. regulators also are reviewing allegations of collusion in crude oil and biofuels markets in scrutinizing how the Platts oil benchmark is set.
Financial institutions have paid about $6 billion so far to resolve criminal and civil claims in the U.S. and Europe that they manipulated benchmark interest rates.
To resolve the Justice Department’s charges, UBS, RBS and Barclays signed deferred-prosecution or non-prosecution agreements within the past two years that effectively put the banks on probation and obliged them to report possible misconduct and cooperate in benchmark-rigging investigations. The banks risk indictment if the government decides they aren’t being cooperative, Tween said.
‘Criminal Conduct’
“Once they’ve got you on one thing, they’ve really got you,” said Tween. “They’ll say ‘You haven’t been cooperative and haven’t lived up to the terms of your deferred-prosecution agreement, and we’re going to pull the plug on that and indict you.’”
Barclays, based in London, agreed to notify the Justice Department of “all potentially criminal conduct by Barclays or any of its employees that relates to fraud or violations of the laws governing securities and commodities markets.” Zurich-based UBS agreed to similar terms.
Edinburgh-based RBS promised to cooperate in “any and all matters” related to “manipulation, attempted manipulation, or interbank coordination of benchmark rate submissions.”
Front-Running
Bloomberg News reported in June that currency dealers said they had been front-running client orders and attempting to rig foreign-exchange rates for at least a decade by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.
The world’s seven biggest foreign-exchange dealers have now all taken action against their employees: at least 17 traders have been suspended, put on leave or fired.
The Justice Department’s use of deferred- and non-prosecution agreements has been rising over the past decade from an average of four per year between 2000 and 2004 to 27 in 2013, according to data compiled by the law firm Gibson, Dunn & Crutcher LLP. Last year was the fifth consecutive year with at least 20 such settlements, the firm said.
Broader Investigations
“These agreements are now a fixture in the federal corporate law enforcement regime, and all indications point to their use holding steady for the foreseeable future,” the firm said.
The agreements help the government conduct broader investigations faster, said Robertson Park, a former federal prosecutor who worked on the Libor investigation.
“If suddenly you have an institution that is effectively giving you the information and documents and data you need, if they’re motivated to provide it in formats that are immediately available and useful to you and if they’re making witnesses available, that can be a significant time savings,” said Park, a lawyer at Murphy & McGonigle in Washington.
To contact the reporters on this story: David McLaughlin in Washington atdmclaughlin9@bloomberg.net; Tom Schoenberg in Washington attschoenberg@bloomberg.net
To contact the editor responsible for this story: Sara Forden at sforden@bloomberg.net
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6 Reasons Canada Won’t Share America’s Economic Growth in 2014 | Diane Francis
6 Reasons Canada Won’t Share America’s Economic Growth in 2014 | Diane Francis.
Consensus is forming that 2014 will be the economic turning point for the United States and that is, traditionally, good news for Canada. But is it?
Most rosy is the forecast by UBS that U.S. GDP will grow by about 3 per cent in 2014 and in 2015 then beyond. The IMF has also just raised its U.S. forecast.
“There has been good action taken by Congress to eliminate the fear about the budget and to reduce the sequestration. We see the Fed having taken some very well-communicated action concerning the tapering of the program, and those are good signs — in addition to which we see some good numbers: Growth is picking up and unemployment is going down,” head of the IMF Christine Lagarde said this week. “So all of that gives us a much stronger outlook for 2014, which brings us to raising our forecast.”
Interestingly, if the United States grows by 3 percent that will virtually match China’s growth, in absolute dollars. (Lest we forget the math. A 3 percent rate in the U.S. is based on a nominal GDP of US$17-trillion and China’s equally rosy forecast of 7.5 percent is based on a nominal GDP of less than US$8-trillion.)
The turning point has come due to the energy boom in the U.S., the housing recovery, the health of its manufacturing sector and productivity rates, banking stability, job growth, low consumer debts and an improved fiscal situation due to the spending cuts imposed by sequestration.
Canada, unfortunately, has some headwinds that, until addressed, will likely decouple Canada’s growth from its neighbour’s in the short and medium term.
Here they are, not necessarily in order of importance:
— Canada lives beyond its means as an economy, with trade and export deficits, despite the benefits of high commodity prices in the past few years.
— Canada’s productivity lags U.S. rates considerably, representing a negative metric that makes export growth difficult. The reasons are varied and include the fact that the Canadian economy is balkanized into political spheres of influence, variant tax and labour laws, non-tariff barriers internally and disparate worker credentials because it lacks a national trade agency to insure the fair flow of workers, goods and services or an over-arching Inter-provincial Commerce Commission. There is no free trade within Canada.
— Canada’s dollar is headed to as low as 88 cents U.S. this year, according to some projections, which is a symptom of problems but also, ironically, somewhat helpful in exports if sustained but not helpful concerning the following issue.
— Canada’s federal and Western provinces are pitch-perfect when it comes to debt levels, spending and investment. Their Triple A or high AA credit ratings reflect that.
But Eastern Canada, on the other hand, is a problem, a clearly defined have-not part of the country with high unemployment rates, high underemployment rates and spendthrift provinces led by Ontario which has the biggest debt of any sub-national government globally. In 2003-4, debts were C$140-billion and in 2013-14 are expected to reach $260-billion and heading higher.
So this means that as the Canadian dollar falls, repayments to foreigners increase as does the need for the Bank of Canada to begin increasing interest rates. The only solution is to bite the bullet, something that vote-hungry politicians have failed to address in the past.
In light of that realization, Goldman Sachs and others are shorting the Canadian dollar.
— Consumer debt is Canada is worrisomely high. The housing bubble in Ontario, condo craziness, has forced prices for all real estate upwards, and increased borrowing, with the result that Canadians now have switched places with the Americans as holders of the highest consumer debt. (Americans were forced to shed their borrowing after the 2008 meltdown but Canadians continued the tradition.)
(This debt overhang will slow consumer spending in Canada, but the newly lower debt levels south of the border are expected to enhance U.S. growth in the next few years.)
— Canada’s cornerstone exports are facing declines. Natural gas is being replaced by U.S. shale gas production. Crude oil, Canada’s most valuable export, is expected to drop in price $20 a barrel due to increasing supplies: the U.S. shale oil boom, Canada’s increasing production, a relaxation of the embargo against Iran if it fulfills its pledges on the nuclear portfolio and Mexico’s invitation to foreign oil companies to help increase production for its moribund national oil giant.
The one bright spot would be approval, finally, of the Keystone Pipeline, with its 800,000 barrels a day of exports. Another would be the Northern Gateway proposal to the B.C. coast.
But both are political footballs for different reasons and may not happen for years, if ever.
The Iranian diplomatic deal, if successful, could enhance world peace but would unleash much oil onto the market. The embargo has limited exports from 2.5 million barrels per day to one million.
The other important export driver in Canada is Ontario’s auto industry but this year the province was overtaken, in terms of production, by the state of Michigan for the first time in a decade. And Ward’s Automotive forecasts a steady decline in Ontario production.
On a positive note, most of Canada’s problems are soluble if electorates, and their public servants, agree to old-fashioned belt-tightening.
Most importantly, Canada has to stop signing free trade agreements with countries that don’t offer reciprocity in terms of export or investment opportunities, such as China and/or the European Union, and forge a Canadian Free Trade Agreement among its provinces and territories. And the US-Canada bi-national issues should be fixed and talks about a development partnership in the North should become policy.
But those are long-term solutions that have eluded Ottawa for generations.
In the meantime, just curbing the excessive growth and overheads of the entire Canadian public sector, and creating a healthy, fair market at home for the Canadian private sector, are bottom-line essentials that any nation-state must enact in order to protect and grow.
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Analysis: Canada banks steal quiet march as Wall Street retreats from energy | Business | Reuters
Analysis: Canada banks steal quiet march as Wall Street retreats from energy | Business | Reuters.
By Nia Williams
CALGARY, Alberta (Reuters) – As Wall Street’s giants pull back from the energy business, Canadian banks are stepping forward, aided by booming domestic oil production and a reputation for prudence.
Bank of Montreal (BMO.TO: Quote), Canadian Imperial Bank of Commerce (CM.TO: Quote) and Bank of Nova Scotia (BNS.TO: Quote), long-time niche players in energy trading, hedging and dealmaking, are expanding their operations both north and south of the U.S. border, executives told Reuters.
In total, commodity trading revenues at the three banks rose by 30 percent last year, according to a Reuters review of their annual reports. Executives say it has been a struggle to match that performance this year, but that they are still gaining ground.
“We have been able to pick up market share not only in our home market but able to rapidly grow our business in the U.S. and overseas in places like the North Sea,” said Adam Waterous, a veteran oil banker who heads Scotiabank’s global investment banking team, which is based in Calgary, Canada’s oil capital.
With their reputation for caution, Canadian banks say they are unlikely to copy their U.S. counterparts and start amassing physical assets such as metal warehouses or oil storage terminals. Big Wall Street banks including JPMorgan Chase & Co. (JPM.N: Quote) and Morgan Stanley (MS.N: Quote) are looking to sell their physical trading desks as regulatory scrutiny increases and returns diminish.
“This is the fourth time in my career I have seen Americans come and go,” Waterous said.
Scotiabank is by far the biggest commodity trader in Canada, due in large part to its long-held ScotiaMocatta precious metals venture. Scotia reported a 26 percent rise in commodity trading revenues to C$425 million ($397 million) last year.
Of the other “Big Five” Canadian banks, Toronto-Dominion Bank (TD.TO:Quote) does not break out commodity trading revenue figures, but Royal Bank of Canada’s (RY.TO: Quote) trading revenues for foreign exchange and commodities climbed by 11 percent last year.
OIL VETERANS
Canadian banks have a long history in the energy sector as a result of their involvement in the expansion of Alberta’s oil sands and the country’s status as the world’s sixth-largest producer of crude.
That opportunity is now expanding as more producers look to hedge output in Canada, which is expected to more than double to 6.7 million barrels per day by 2030. New products, such as CME Group’s Edmonton Sweet oil futures, which was launched this week, open new avenues for trading.
Thanks to a culture of conservative and cautious lending, Canadian banks emerged from the global financial crisis with reputations intact and some of the strongest credit ratings in the world.
“There’s a coming of age. In Canada there is the oil sands and in North America there’s the shale revolution that provides a great opportunity for our skill set and our history,” said Shane Fildes, head of global energy at Bank of Montreal, whose commodity trading-related revenues surged 65 percent to C$66 million in 2012.
Fildes said BMO’s energy trading desk expanded recently to five people from three, and its energy business as a whole employed 65 people in Calgary and 45 in Houston. The bank recently hired Paul Dunsmore from Barclays (BARC.L: Quote) to beef up its commodities derivatives team.
“The counterparty credit of being a Canadian bank is a very smart calling card in this environment,” he said.
At CIBC, commodity trading income rose 20 percent to C$52 last year and headcount has also increased across sales, trading, research and analytics, said Arden Majewski, who joined the bank two years ago to run its global commodities business after working for Swiss-based merchant Mercuria and for Merrill Lynch.
Scotiabank, whose commodity business is the largest and most established, has a history of stepping in when foreign banks pull back. Three years ago it bought much of UBS’s (UBSN.VX: Quote) Canadian commodities trading platform technology, when the Swiss bank exited Canadian energy trading. It bought U.S. energy investment boutique Howard Weale last year.
In September, RBC hired Kathy Kriskey from CIBC as head of commodity investor sales in New York to develop the bank’s commodity index products.
But in the scramble to pick up Wall Street business Canadian banks face competition from foreign banks such as Australia’s Macquarie MQG.AX and Brazil’s Grupo BTG Pactual SA (BBTG11.SA: Quote) as well as from private equity-backed merchants such as TrailStone and national giants such as Russia’s Rosneft (ROSN.MM: Quote).
TRADING OPPORTUNITIES
While many Wall Street banks embraced physical energy trading, Canadian banks have so far shied away.
CIBC, Scotiabank, TD, and RBC do trade physical natural gas, a homogenous product that is easy to value. As well, BMO is in the middle of an approval process to trade physical natural gas, and the bank expects the process to be completed early in 2014.
None of the banks are involved in physical crude trading, however, which would entail greater investment in logistics and storage, Calgary market players said.
That makes them unlikely bidders for businesses such as JPMorgan’s physical commodities desk, which is in the second stage of a sale, or the asset-rich oil and power operations at Morgan Stanley, which has tried in vain for more than a year to find a buyer for that desk.
Instead, the Canadians concentrate on trading financials – crude derivatives contracts, usually based on the U.S. West Texas Intermediate benchmark – that enable clients to hedge their exposure to price swings in oil markets.
Client hedging activity tends to increase sharply in relation to oil market volatility. Bank traders in Calgary said they expect hedging demand to stay strong because of booming North American production and supply bottlenecks that exacerbate the discount on Canadian crude.
“With the U.S. investment banks that have pulled out of Canada, there would be more opportunity for these guys to fill that void,” said Brian Klock, equity analyst at KBW Inc.
($1=$1.07 Canadian)
(Editing by Jonathan Leff; and Peter Galloway)
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Define “Market” Irony: When JPMorgan’s Chief Currency Dealer Is Head Of An FX Manipulation “Cartel” | Zero Hedge
Now that everyone is habituated to banks manipulating every single product and asset class, and for those who aren’t, see this explanatory infographic…
Foreign Exchanges
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.
Energy Trading
Banks have been accused of manipulating energy markets in California and other states.
Libor
Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.
Mortgages
Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.
…revelations that this market and that or the other are controlled by a select group of criminal bankers just don’t generate the kind of visceral loathing as 2012’s Libor fraud bombshell.
As much was revealed when the second round of exposes hit in the middle of 2013, mostly focusing on manipulation in the forex market, and the general population largely yawned, whether due to the knowledge that every market is now explicitly broken (explaining the abysmal trading volumes and retail participation in recent years) or because nobody ever gets their due punishment and this kind of activity so not even a perp-walk spectacle can be enjoyed, this is accepted as ordinary-course action.
Nonetheless, we are glad that the actions of the FX cartel continue to get regular exposure in the broader media, in this case Bloomberg who, among other things, reminds us that it was none other than JPM’s Dick Usher who was the moderator of the appropriately titled secret chat room titled “The Cartel” which we noted previously. It is this alleged criminal who “worked at RBS and represented the Edinburgh-based bank when he accepted a 2004 award from the publication FX Week. When he quit RBS in 2010, the chat room died, the people said. He revived the group with the same participants when he joined JPMorgan the same year as chief currency dealer in London.”
Yes, the chief currency dealer of JP Morgan, starting in 2010 until a few months ago when he quietly disappeared, was one of the biggest (allegedly) FX manipulators in the world. Define irony…
What are some of the other recent revelations?
Here is a reminder of the prehistory from Bloomberg. First came the chat rooms:
At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia,” in which dealers exchanged information on client orders and agreed how to trade at the fix, according to the people with knowledge of the investigations who asked not to be identified because the matter is pending. Some traders took part in multiple chat rooms, one of them said.
The allegations of collusion undermine one of society’s fundamental principles — how money is valued. The possibility that a handful of traders clustered in a closed electronic network could skew the worth of global currencies for their own gain without detection points to a lack of oversight by employers and regulators. Since funds buy and sell billions of dollars of currency each month at the 4 p.m. WM/Reuters rates, which are determined by calculating the median of all trades during a 60-second period, that means less money in the pension and savings accounts of investors around the world.
…
One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” — JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS — according to the people with knowledge of the probe. Their banks controlled more than 40 percent of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.
Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.
And after that came unprecedented hubris and a sense of invincibility:
The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.
The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.
Since nobody investigated, next naturally, come the profits and the crimes:
Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange — the buying and selling for immediate delivery as opposed to some future date — isn’t considered an investment product and isn’t subject to specific rules.
While firms are required by the Dodd-Frank Act in the U.S. to report trading in foreign-exchange swaps and forwards, spot dealing is exempt. The U.S. Treasury exempted foreign-exchange swaps and forwards from Dodd-Frank’s requirement to back up trades with a clearinghouse. In the European Union, banks will have to report foreign-exchange derivatives transactions under the European Market Infrastructure Regulation.
A lack of regulation has left the foreign-exchange market vulnerable to abuse, said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business in Manhattan.
“If nobody is monitoring these benchmarks, and since the gains from moving the benchmark are possibly very large, it is very tempting to engage in such a behavior,” said Abrantes-Metz, whose 2008 paper “Libor Manipulation” helped spark a global probe of interbank borrowing rates. “Even a little bit of difference in price can add up to big profits.”
… along with a lot of banging the close:
Dealers can buy or sell the bulk of their client orders during the 60-second window to exert the most pressure on the published rate, a practice known as banging the close. Because the benchmark is based on the median value of transactions during the period, breaking up orders into a number of smaller trades could have a greater impact than executing one big deal.
… and much golf and “envelopes stuffed with cash”
On one excursion to a private golf club in the so-called stockbroker belt beyond London’s M25 motorway, a dozen currency dealers from the biggest banks and several day traders, who bet on currency moves for their personal accounts, drained beers in a bar after a warm September day on the fairway. One of the day traders handed a white envelope stuffed with cash to a bank dealer in recognition of the information he had received, according to a person who witnessed the exchange.
Such transactions were common and also took place in tavern parking lots in Essex, the person said.
Personal relationships often determine how well currency traders treat their customers, said a hedge-fund manager who asked not to be identified. That’s because there’s no exchange where trades take place and no legal requirement that traders ensure customers receive the best deals available, he said.
In short – so simple the underwear gnomes could do it:
- Create a cartel
- Corner and manipulate the market
- Profit.
And that’s why they (and especially Jamie Dimon) are richer than you.
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The Fed, The Taper & What Happens “When The Kidnapper Wears Prada” | Zero Hedge
The Fed, The Taper & What Happens “When The Kidnapper Wears Prada” | Zero Hedge.
The rich continue to grow richer, and as David McWilliams (of Punk Economics) so eloquently explains in this brief clip, this has pushed the Fed into a corner. As the Federal Reserve gets a new chair and decides what to do next, whether to print $85 billion a month more or not, McWilliams examines the heist that is the new normal financialized economy – who gets all the loot and why today’s kidnappers wear Prada. “Wake up,” he blasts, explaining the uncomfortable reality of what happens when financial kidnappers dress up as loyal patriots and extort money in the name of the common good.
“Today’s ransom is the billions of dollars in the form of QE; today’s hostage is the US economy which the kidnappers threaten to kill by a collapse in asset prices if they don’t get more and more free money… and who is paying the ransom… it is the Federal Reserve…
The message from Wall Street – the kidnapper – is: if you don’t give us what we want, we will killl the economy.”
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Deutsche Bank Investigated In Gold Manipulation Probe | Zero Hedge
Deutsche Bank Investigated In Gold Manipulation Probe | Zero Hedge.
A month ago, regulators in Europe began their investigation into manipulation of the “London gold fixing” (and we explained the methods here). While the complete history of gold manipulation goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany’s financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets. As The FT reports, BaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
Germany’s financial regulator has demanded documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
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Deutsche Bank is one of five banks that take part in the twice-daily “London gold fixing”, and one of three banks that take part in the equivalent process for silver.
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Some bankers believe BaFin has come under pressure to show it is willing to get tough on suspected market manipulation. It was widely seen to have been slow to respond to the concerns over possible manipulation in the forex market expressed by other regulators around the world earlier this year.
Although the gold and silver fixings are, like Libor, set by small groups of banks, they contrast with the process for setting Libor in that they are based on trading activity rather than theoretical quotes.
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The visit to Deutsche offices signals that BaFin now has greater concerns over the precious metals markets. Officials have asked to observe documents and processes related to precious metals trading as well as to interview bankers, the person said.
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The other banks that take part in the gold fixing are Barclays, Bank of Nova Scotia, HSBC and Société Générale. The other banks involved in silver fixing are Bank of Nova Scotia and HSBC. As the only German member of either fixing, Deutsche is the only bank to come under BaFin’s remit.
Of course, despite day after day of closing price smackdowns (and the very occasaional vertical ramp), we are sure the regulators will find no wrong doing… for, as we noted here,this manipulation is by design, not malfeasance…it’s for your own good…
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EU Commission fines banks $2.3 billion for benchmark rigging | Reuters
EU Commission fines banks $2.3 billion for benchmark rigging | Reuters.
1 OF 2. European Union Competition Commissioner Joaquin Almunia addresses a news conference at the EU Commission headquarters in Brussels December 4, 2013.
CREDIT: REUTERS/YVES HERMAN
(Reuters) – EU antitrust regulators fined six financial institutions including Deutsche Bank, Royal Bank of Scotland and Citigroup a record total of 1.71 billion euros ($2.3 billion) on Wednesday for rigging financial benchmarks.
The move confirms what a source familiar with the matter had previously told Reuters.
The penalty is the biggest yet to be handed down to banks for rigging the benchmarks used to determine the cost of lending, one of the most brazen violations of conduct since the financial crisis. It is also the highest antitrust penalty ever imposed by the Commission, the EU’s competition regulator.
The other banks penalized are Societe Generale, JPMorgan and brokerage RP Martin.
Deutsche Bank received the biggest fine of 725.36 million euros.
The European Commission said it would continue to investigate Credit Agricole, HSBC, JPMorgan and brokerage ICAP for similar offences.
The benchmarks involved are the London interbank offered rate, or Libor, the Tokyo interbank offered rate and the euro area equivalents. They are used to price hundreds of trillions of dollars in assets ranging from mortgages to derivatives.
“What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other,” EU Competition Commissioner Joaquin Almunia said in a statement.
LIKELY SANCTIONS
RP Martin and ICAP could not be immediately reached for comment. Deutsche Bank said it has set aside enough money to cover most of the 725 million euro fine.
JPMorgan confirmed its 79.9 million euro penalty in the Libor case but said it would defend itself in the Euribor case. [ID:nWNBB037YI]. Societe Generale declined to comment.
Unlike the six banks which admitted liability in return for a 10 percent reduction in their fines, Credit Agricole has refused to settle and will likely face sanctions next year. HSBC has also contested the EU’s proposed penalty.
Both banks are expected to be formally charged on Wednesday.
A spokesman for HSBC said the bank would defend itself vigorously in the Euribor case, while Barclays confirmed its cooperation with the Commission which helped it stave off a 690 million euros sanction.
RBS said its 391 million euro penalty had been fully provisioned for.
Authorities around the world have so far handed down a total of $3.7 billion in fines to UBS, RBS, Barclays, Rabobank and ICAP for manipulating rates, while seven individuals face criminal charges.
UBS paid a record fine of $1.5 billion late last year to the U.S. Department of Justice and the UK’s Financial Services Authority for rate-rigging.
EU fines can reach up to 10 percent of a company’s global turnover.
UBS blew the whistle on the Libor and Tibor cases and will not be fined as a result. Barclays will escape a fine in the Euribor case because it alerted the Commission to the offence.
(Additional reporting by Matthias Blamont in Paris, Steve Slater and Kirstin Ridley in London, Ludwig Burger and Clare Hutchison in Frankfurt, Lionel Laurent in Paris; Writing by John O’Donnell; Editing by Luke Baker and David Holmes)
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Brits Draw Down Record Amounts Of Savings To Cover Rising Cost of Living | Zero Hedge
Brits Draw Down Record Amounts Of Savings To Cover Rising Cost of Living | Zero Hedge.
In the most dramatic evidence yet that Britons are paying for the rising cost of living by raiding savings, Yahoo UK reports that households are pulling money out of their savings accounts at the fastest rate in modern record, according to Bank of England figures. Since the recent recession began, millions of workers have suffered repeated effective pay cuts as inflation has outstripped pay rises, and while consumer spending was one of the main contributors to the sharp rise in gross domestic product in the third quarter, “consumer strength usually reflects increased borrowing but this hasn’t been the key factor recently.”
In the year to October, the amount of cash in time deposits and cash ISAs fell by 4.7%, while the amount families have in their instant access current accounts or in their pockets rose by 11.2%. This inflationary shift of cash is the biggest since comparable records began in the 1970s.
In the past year, families have withdrawn £23bn from their long-term savings accounts to convert into cash and put into current accounts – the equivalent of around £900 for every household in the country.
It is the most dramatic evidence yet that Britons are paying for the rising cost of living by raiding their savings accounts.
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According to economists, the shift of cash is the biggest since comparable records began in the 1970s, and reverses much of the sharp increase in saving that happened at the height of the recession.
On Thursday, the Chancellor’s Autumn Statement is expected to focus on measures to help households deal with the rising cost of living, including energy bills.
Since the recent recession began, millions of workers have suffered repeated effective pay cuts as inflation has outstripped pay rises.
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Consumer spending was one of the main contributors to the sharp rise in gross domestic product in the third quarter, and a further strong increase is implied by the Bank’s money figures.
But while the figures suggest that the economy is strengthening, they will also be taken as further evidence that savers are being deterred from putting money aside by record low interest rates.
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Some also suspect that with households still facing a significant squeeze as a result of higher living costs, many are having to dig into their savings in order to afford day-to-day items.
So the UK economy is surging and being lauded as evidence of QE’s efficacy but the reality is inflation is eating away at people’s wealth and hot money flows have caused the cost of living to rise dragging out the mainstay of future growth – savings – to meet consumption needs today. How long before government inflation data reflects this?
Olduvaiblog: Musings on the coming collapse 