Barclays’ Gold Manipulation

Details Of Barclays’ Gold Manipulation

Submitted by Tyler Durden on 05/23/2014

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).

Once all the Gold Fixing Members had declared their respective positions at USD1,558.50, the level of selling in the 28 June 2012 Gold Fixing exceeded the level of buying by 190 bars (155 bars buying/345 bars selling). This suggested that the proposed price in the 28 June 2012 Gold Fixing was likely to move lower.

At 3:07 p.m. Mr Plunkett withdrew his entire sell order, which resulted in Barclays’ representative withdrawing Barclays’ position (selling 130 bars). This reduced the imbalance in the 28 June 2012 Gold Fixing from 190 bars to 60 bars (155 bars buying/215 bars selling).

By withdrawing his entire sell order, Mr Plunkett intended to bring the difference between buying and selling interests within the 50 bar margin required for the price to fix. This would also increase the likelihood of the price fixing at USD1,558.50 (below the Barrier).

Following Mr Plunkett’s withdrawal of his order, one of the Gold Fixing Members reduced its selling position by 10 bars, bringing the imbalance in the 28 June 2012 Gold Fixing to 50 bars. However, before the price was fixed, there were a number of further changes in the levels of buying and selling in the 28 June 2012 Gold Fixing, which coincided with an increase in the price of August COMEX Gold Futures.

As a result of these changes, the level of buying at USD1,558.50 exceeded the level of selling (155 buying/45 selling), and the proposed price was likely to move higher. Given that the price of August COMEX Gold Futures was trading around USD1,560.00 at this time, if the Chairman did move the proposed price in the 28 June 2012 Gold Fixing higher, it was likely to be to a similar price level (which was higher than the Barrier).

At 3:09 p.m., Mr Plunkett again placed a large sell order, 60,000 oz. (150 bars), with Barclays’ representative, who, also taking into account changes in customers’ orders, declared Barclays’ net position in the 28 June 2012 Gold Fixing to be selling 40,000 oz. (100 bars).

By placing his sell order, Mr Plunkett intended to increase the likelihood of the price fixing at USD1,558.50 (below the Barrier).

Barclays’ sell order, of which Mr Plunkett’s order was a significant component, had the effect of bringing the level of buying and selling in the 28 June 2012 Gold Fixing to a point where the imbalance was 10 bars (155 buying/145 selling) and the price could be fixed. Indeed, shortly after Mr Plunkett placed this order, two of the Gold Fixing members adjusted their orders and at 3:10 p.m. the Chairman declared the price to be fixed at USD1,558.50 (below the Barrier). As a result, Barclays was not obligated to make the USD3.9m payment to Customer A and Mr Plunkett’s book thereby profited by USD1.75m (excluding hedging), which was in addition to the initial profit that his book had received upon the sale of the Digital.

Events after the 28 June 2012 Gold Fixing

Shortly after the conclusion of the 28 June 2012 Gold Fixing, Mr Plunkett repurchased 60,000 oz. (150 bars) of gold by executing an internal trade with Barclays’ Gold Spot Book. The purpose of executing this order was to unwind the 60,000 oz. (150 bars) position he had taken during the 28 June 2012 Gold Fixing.

Mr Plunkett’s trade was executed at a higher price than that at which he had sold during the 28 June 2012 Gold Fixing, and his trading book suffered an immediate loss of approximately USD114,000.

Customer A’s enquiry and Barclays’ and the Authority’s investigations

Very shortly after the conclusion of the 28 June 2012 Gold Fixing, Customer A became aware that the price had fixed just below the Barrier and sought an explanation from Barclays as to what happened in the Gold Fixing. Customer A’s enquiry was relayed to Mr Plunkett. Mr Plunkett provided an explanation that referred only to the significant selling in August COMEX Gold Futures. Mr Plunkett did not disclose his trading activity during the 28 June 2012 Gold Fixing, which was a material fact that ought to have been disclosed.

Later on 28 June 2012, and again on 29 June 2012, Mr Plunkett had further communications within Barclays regarding Customer A’s concerns. Again, Mr Plunkett did not disclose his trading activities during the 28 June 2012 Gold Fixing.

After the weekend, on the morning of Monday 2 July 2012, Mr Plunkett sought out his line manager and informed him that he had traded during the 28 June 2012 Gold Fixing. He also subsequently reported his trading to Barclays’ Compliance.

During Barclays’ internal investigation, Mr Plunkett provided an account of his trading during the Gold Fixing that was untruthful, in that he did not disclose the true rationale for his trading, or the reasons why he failed to disclose his trading to the Sales Desk on 28 June 2012. In giving this account,Mr Plunkett intended to give the impression that he placed orders in the 28 June 2012 Gold Fixing for reasons other than to increase the likelihood that the price of gold would fix below the Barrier.

Mr Plunkett continued to provide this untruthful account of events when he was interviewed by the Authority.

The circumstances of Mr Plunkett’s trading in the 28 June 2012 Gold Fixing were formally investigated by Barclays. Barclays subsequently repaid Customer A the full amount that Customer A would have been due had the price of gold in the 28 June 2012 Gold Fixing fixed above the Barrier.

* * *

A historical intraday chart of the gold price from June 28, 2012 reveals precisely where the action was: just so Plunkett did not have to pay out millions, gold ultimately tumbled from $1590 to just below $1559 in one day.

* * *

And now we know how it is done, and also know that a single trader can move and reprice the entire gold market courtesy of massive paper gold slams at critical points without regard for price discovery, when self-serving interests are all that matter: just as we have alleged since 2009.

Which leaves two open questions:

  1. How many other people in addition to Customer A were impacted by Daniel Plunkett’s gold manipulation, because while one person had a lot to lose on an artificial gold repricing, it is just as true that many more people positioned alongside Customer A also lost, if perhaps smaller amounts (but nobody knows). The fact that they lost, however, due to a criminal, self-serving intervention by one person, does not mean that they too aren’t entitled to monetary compensation. Or perhaps the FCA will pull out the HFT excuse which is that if millions lose minuscule amounts of money due to market rigging, it isn’t really market rigging?
  2. How many other traders at other commercial banks, other central banks and the BIS itself, do this on a daily basis, and what would the price of gold be if one would eliminate the compounded impact of all comparable gold manipulation events (whether at the fixing or at any other time) over the past decade or, if one goes back to the very beginning of the London gold fix, the past 117 years?

We aren’t holding our breath to find out.

 

Gold Manipulation

Caught Red-Handed: This Is What Zoomed

In Gold Manipulation Looks Like

Submitted by Tyler Durden on 05/23/2014

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.

2. August 2012 Gold (GC) Futures trades and quote spread – Zoomed out.

3. August 2012 Gold (GC) Futures trades and quote spread – Zoomed out 2.

4. August 2012 Gold (GC) Futures trades and quote spread – Zoomed out 3.

5. August 2012 Gold (GC) Futures trades and quote spread – Zoomed out 4.

 

 

Barclays and Credit Suisse

Barclays, Credit Suisse Battle Banker Exodus, Legal Woes

By Elisa Martinuzzi May 5, 2014 2:00 PM ET

Barclays Plc (BARC), Credit Suisse Group AG and UBS AG (UBSN) will confront questions this week about key banker departures, legal challenges and their efforts to boost profitability.

Barclays last week lost three top bankers in the U.S. and Asia before a May 8 strategy announcement that will probably include shrinking the London-based firm’s investment bank. Credit Suisse, which holds a shareholder meeting May 9, is facing potential U.S. criminal charges over its role in helping Americans avoid paying taxes, people familiar with the matter said last week. UBS AG, meeting investors tomorrow, is falling short of profit goals, according to analysts’ estimates.

Europe’s top banks are under heightened scrutiny from shareholders, regulators and legal authorities after they’ve already lost market share in some investment banking businesses to U.S. competitors. Meanwhile key areas of Wall Street revenue are under pressure: JPMorgan Chase & Co. (JPM), the biggest U.S. bank, said last week that it expects trading revenue to drop about 20 percent this quarter from a year ago.

“Whether you’re European or in the U.S., what you’re facing is a declining trading environment,” said Charles Peabody, an analyst at Portales Partners LLC in New York. “So where you gain share is on the investment banking side, especially underwriting, and the U.S. banks have been doing that.”

Photographer: Gianluca Colla/Bloomberg

Brady Dougan, chief executive officer of Credit Suisse Group AG.

‘Disadvantage’

Barclays will now have to compete without some of the key dealmakers it acquired with its purchase of Lehman Brothers Holdings Inc.’s North American operations. Hugh “Skip” McGee, the Lehman Brothers alumnus who received a stock bonus more than twice the size of Barclays Chief Executive Officer Antony Jenkins, left last week. That was followed by the departures of Ros Stephenson to Zurich-based UBS and Robert Morrice, the Asia-Pacific chairman and CEO, who is retiring after 17 years.

The Lehman Brothers acquisition helped Barclays in the U.S. The bank ranks higher among underwriters of U.S. stock sales than it does in Europe, according to data compiled by Bloomberg. The bank is also more active on mergers involving U.S. companies than on European deals, the data show.

“If people are departing, and you don’t have continuity in your relationships, that’s a disadvantage,” Peabody said.

Investors are demanding that Jenkins, 52, outline a strategy for the investment bank, the biggest source of income for the firm, after falling behind on targets and boosting pay.

‘Bad Bank’

Return on average equity at Barclays’s securities unit, a measure of profitability, fell to 8.2 percent last year from 13 percent in 2012, short of Jenkins’s target of at least 11 percent in 2015.

Barclays could eliminate 7,500 jobs at its investment bank, according to an April 22 report by Sanford C. Bernstein. The European fixed-income, currencies and commodities business may be the hardest hit, with about 5,000 job losses, analysts led by Chirantan Barua said in the note. Cuts of 6,500 to 7,500 equate to between 25 percent and 30 percent of the unit’s employees, the report estimated.

In the strategy review this week, Barclays will say it’s naming Corporate and Investment Bank Co-Head Eric Bommensath to oversee a so-called bad bank of unwanted assets and units, leaving Tom King in charge of the investment bank, a person familiar with the plan said last week. The bad bank will include the commodities business and other units previously assigned to the bank’s “exit quadrant,” including some of the firm’s rates trading, derivatives and other fixed-income assets, the person said.

‘Unforeseen Events’

The challenge for Barclays “is to continue the rebalancing of the group away from being a fixed-income dominated investment bank to being a more balanced investment bank,” UBS analysts led by John-Paul Crutchley said in a May 1 research note. Investors would favor “a restructuring that reduced the overall balance sheet and lowered capital intensity.”

Credit Suisse (CSGN) CEO Brady Dougan, 54, will probably face questions at his company’s May 9 annual meeting about the implications of possible U.S. charges against the firm, the largest of the 14 Swiss banks under criminal investigation in a crackdown on offshore tax evasion.

Clients — including trustees, fiduciaries and pension funds — could be forced to cut ties with a financial institution labeled a criminal enterprise, some lawyers and bankers have said.

“Unforeseen events can occur,” Brad Hintz, an analyst at Sanford C. Bernstein in New York told Bloomberg Television last week. “A criminal charge is going to cause the clients to pull away and you can set off that wildfire in confidence.”

Shedding Assets

The uncertainty is already weighing on BNP Paribas SA. (BNP) France’s biggest bank posted the biggest two-day loss in almost a year last week as analysts cut their ratings on the stock, citing concern over potential criminal charges for violations of U.S. sanctions barring business with prohibited countries. BNP Paribas said on April 30 it may need to pay “far in excess of” the $1.1 billion it has set aside for legal investigations by U.S. authorities.

At UBS, which has already retrenched in fixed income and settled a U.S. tax case, the challenge for CEO Sergio Ermotti is shedding unwanted assets fast enough and cutting costs. Ermotti, 53, will seek to reassure shareholders at a meeting in Zurich tomorrow that the firm won’t need to review its objectives after the Swiss regulator’s demands that the bank hold more capital to cover legal risks delayed profitability targets last year.

UBS may post a return on equity of 12.9 percent in 2016, missing a target of 15 percent, according to the average estimate of 15 analysts surveyed by Bloomberg.

As of Dec. 31, UBS was about 1 billion Swiss francs ($1.14 billion) short of its cost-reduction target, leaving an additional 3.2 billion francs of targeted expense savings, Citigroup Inc. analysts led by Kinner Lakhani wrote in a May 2 research note. Costs and capital are two areas that will probably be the focus of the investor day, the analysts wrote.

To contact the reporter on this story: Elisa Martinuzzi in Milan atemartinuzzi@bloomberg.net

To contact the editors responsible for this story: Edward Evans ateevans3@bloomberg.net; Frank Connelly at fconnelly@bloomberg.netMark Bentley, Christine Harper

 

 

 

 

Libor

Registered Business # CIK#: DUNS #:
Respondent T&C Ref: Other
Rothschild 36 Rothschild Bankers charged
US regulator sues 16 banks for alleged Libor rigging BBC News  A US regulator has sued 16 banks for allegedly manipulating the London interbank offered rate (Libor).
The Libor rate is used to set trillions of dollars of financial contracts, including mortgages and financial transactions around the world.
The regulator said the manipulation caused substantial losses to 38 US banks which were shut down during and after the 2008 financial crisis.
The sued banks include Barclays, HSBC, Citigroup and Royal Bank of Scotland.
Former UBS and Citigroup Trader charged over Libor BBC News

Former UBS and Citigroup trader Tom Hayes has been charged by the Serious Fraud Office (SFO) in connection with its investigation into the manipulation of Libor.

Mr Hayes, 33, has been charged with eight counts of conspiracy to defraud, and will appear before Westminster Magistrates’ Court on Thursday.