Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Soybean Price Hits 9 Year Low Due to Trade War - 24th Jun 18
Small Cap Stocks, Technology and Pharma To Drive A Renewed Market Rally - 24th Jun 18
Gerald Celente: Why You Still Need Guns, Gold, and a Getaway Plan... - 23rd Jun 18
Cheap Gold Stocks Bottom Basing - 23rd Jun 18
A Trade War Won’t Be Good for the US Dollar - 23rd Jun 18
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

As ISDAFIX Becomes Next LIBOR, Can GOFO Manage To Avoid The Spotlight?

Interest-Rates / Global Financial System Sep 08, 2014 - 10:54 AM GMT

By: GoldCore

Interest-Rates

In the wake of the recent LIBOR benchmark interest rate rigging scandal and successful prosecution of a number of global investment banks for participating in LIBOR manipulation, a new interest rate rigging scandal is gathering steam.

Allegations surfaced last year that ISDAFIX, a similar global interest rate benchmark, had been rigged by a group of global banks, and these allegations are under investigation by a number of regulators including the US CFTC and the UK FCA. While the regulators have not provided any feedback as of yet, the class action suits by impacted investors are now beginning.


ISDAFIX is a set of global benchmarks for interest rate swaps that are used by the worldwide financial community to price and settle contracts based on these interest rate derivative swap contracts. The interest rate swap market is worth over $450 trillion, and these products and contracts are used by a wide spectrum of participants from large corporates to national pension funds and investment houses. The International Swaps and Derivatives Association (ISDA) owns the ISDAFIX benchmark.

The first class action suit in the US has just been filed by the Alaska Electrical Pension Fund, and is seeking compensation for alleged manipulation of the ISDAFIX benchmark rates. The class action suit accuses 13 investment banks and one brokerage of manipulating the benchmark rates to artificial levels over a multi-year period so as to avoid paying out to clients on the interest rate contracts.

The defendants comprise the largest investment banks in the world including Barclays, JP Morgan, Deutsche Bank, Goldman Sachs, HSBC, UBS, and Credit Suisse, (which are all market making members of the London Bullion Market Association) and also Citigroup, and Bank of America. Brokerage house ICAP is also named in the class action suit. ICAP was in charge of calculating the US dollar version of ISDAFIX by averaging rates which were submitted by the contributing banks.

The Alaskan pension fund suit contains analysis by legal and investment consultancy Fideres. Fideres was also the consultancy that provided analytical evidence of price manipulation for a number of recent class action suits that allege price manipulation of the London Gold Fixing benchmark.

According to the suit, analysis over 2009-2012 by Fideres finds that on nearly every day the banks in question were all submitting virtually identical rates to each other, and that when it became known in December 2012 that UBS had begun cooperating with regulators over the LIBOR investigations, only then did the submitted rates start to diverge.

Following the manipulation allegations, the owner of the benchmark, ISDA, took the administration of the benchmark away from ICAP, and more recently, a new administrator ICE Benchmark Administration has been appointed by ISDA. ICE is the owner of numerous financial exchanges and clearing houses, such as the NYSE Euronext exchange.

After the LIBOR scandal, the LIBOR benchmark became the world’s first regulated benchmark. LIBOR is now regulated by the UK FCA, and coincidentally, LIBOR it is also administered by ICE Benchmark Administration. There is an expectation in the market that the ISDAFIX benchmark will probably also become a regulated benchmark.

When the LIBOR scandal broke, financial regulators began investigating all similar bank submitted benchmarks and processes including ISDAFIX and the foreign exchange market benchmarks. In the precious metals markets, regulators turned their attention to benchmarks such as the London gold fixing and London silver fixing benchmarks.

However, other precious metal benchmarks such as the London Bullion Market Association’s (LBMA) GOFO benchmark and the LBMA’s forward curve data also came under regulatory scrutiny. It is therefore interesting to note that there have been a number of very recent developments around GOFO and gold forward rate submissions in the London gold market, specifically the publication of a code of conduct for GOFO submitters and the reluctance of gold forward market makers to continue to submit data for longer dated gold forwards.

GOFO is the Gold Offered Forward rate and is a short interest rate used for gold interest rate swaps and other gold lending and financing agreements. GOFO rates are owned by the LBMA and calculated by Thomson Reuters based on taking an average of submissions by a panel of seven LBMA marketing making investment banks that make markets in gold forwards in the London bullion market.

Gold forward contracts are just over the counter (OTC) agreements between two parties to buy gold now and sell it back later or vice versa, and are usually expressed in gold and dollars as the two sides of the trade. Gold forwards can be short term in nature or extend out for up to 10 years into the future.

These seven banks are Barclays, HSBC, JP Morgan, Goldman Sachs, UBS, SocGen and the bank of Nova Scotia, many of which are named in the ISDAFIX class action suit above. and some of which are named in multiple class action suits alleging manipulation of the daily gold fixing.

The LBMA forward market makers have supplied GOFO data to the market for many years, but in early 2011 they began supplying longer dated gold forward data to the market under a commercial arrangement with the London Metal Exchange (LME). This data, known as the gold forward curve data included pricing data out to 10 years, and at the launch of the gold forward curve in January 2011, the LBMA stated “our intent is that the LBMA Gold Forward Curve will become the new benchmark for the market.”

After the financial crisis of 2008, regulators had advocated moving OTC trades on to exchanges, so as to minimise counterparty risk by moving trade clearing on to the exchange. This was seen as a way of reducing credit risk. The LBMA therefore helped launch services for clearing gold forwards, and the CME Group and LCH.Clearnet began offering gold forward clearing services.

The forward curve data became helpful in the market for valuing end-of-day positions in gold forwards but, as importantly, the forward curve data allowed the clearinghouses to use the forward curves to value and mark-to-market the forward trades, and provide transparency to market participants.

It is therefore surprising that late last week the majority of LBMA forward market makers announced that they were no longer in a position to continue contributing the data that is used in calculating forward curves. It is believed in the market that the fear of increased regulatory scrutiny was behind the decision of the market makers to stop providing this data.

This decision now means that the LME, who was set to take over the gold forward clearing service from LCH.Clearnet later this month, now finds itself in the position where it can’t offer this service because it will not have the data to value the cleared gold forwards.

At the same time, the LBMA has just published a code of conduct and best practices guidelines for the forward market makers who will continue, for now, to publish the shorter duration GOFO gold lending/swap rates.

With the same list of usual suspect investment banks involved in LIBOR, ISDAFIX and GOFO and gold forwards, it appears that the LBMA market making bullion banks are now weighing up the legal risks of the LIBOR and ISDAFIX fallout, and trying to shut the barn door after the horse has bolted.

The new LBMA code of conduct for submitting GOFO data contains some very clear recommendations to the market makers including “data should be submitted consistently and not selectively in order to mislead the market” and “data should not be submitted to manipulate the market in any way”.

All very good. But it would not be surprising to us if it becomes apparent that the GOFO data and the additional gold forward rate data has been subject to the same type of price manipulation as has been found with LIBOR and that has been alleged with ISDAFIX. We hope not, but it remains to be seen what, if anything, the regulators report back on.

MARKET UPDATE
Today’s AM fix was USD 1,267.25, EUR 978.87 and GBP 786.57 per ounce.
Friday’s AM fix was USD 1,264.00, EUR 975.69 and GBP 774.80 per ounce.

Gold climbed $5.19 or 0.47% to $1,268.80 per ounce and silver rose $0.12 or 0.63% to $19.20 per ounce yesterday. Gold and silver both fell last week equally at 1.44%.

Platinum is trading at $1,410, up 0.35% from Friday, while palladium is also stronger, trading at $894, up 0.8% from Friday.

This update can be found on the GoldCore blog here.

Yours sincerely,
Mark O'Byrne
Exective Director

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W www.goldcore.com

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules