Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Let’s Watch as the Big Bank “Fixers” Scramble and Flee

Companies / Banksters Oct 07, 2014 - 08:43 AM GMT

By: Money_Morning

Companies

Shah Gilani writes: If you can’t beat ‘em (or manipulate ‘em), then don’t join ‘em.

That’s the new Wall Street mantra, as evidenced by happenings in the “fixing” world.

Talk about irony. “Fixing” or “fix” are Wall Street terms used to describe how benchmarks are priced on hundreds of instruments, from the Libor and other foreign currency exchange rates to gold, silver and swaps.


In all fairness, “fix” didn’t start out as a Wall Street term.

It’s been around, but Wall Street eagerly joined ‘em.

Now, join me as I tell you all about this fix we’re in…

Price Fixing’s Downfall

Most stocks trade on exchanges, and their prices are determined by those trades, and so the closing price of a stock is generally the last price at which it traded. On the other hand, benchmarks (not including stock-market benchmarks) are “fixed.”

Take the Libor, for example – it’s fixed. The London Interbank Offered Rate is actually a series of interest-rate benchmarks in different currencies for different durations.

The Libor is the most widely used interest-rate benchmark in the world. Interest rates on all kinds of loans are based on Libor plus some additional “spread” above the base Libor rate.

But Libor itself isn’t determined on any exchange, or where loans are traded over the counter, or necessarily by any actual transactions. Libor is fixed by a fixing panel.

That means the select, small panel of bankers who trade Libor (interest-rate traders) get together, through computers (for some instruments, sometimes by phone), and fix, which means determine or price, benchmarks. Those benchmarks are then used for valuation purposes, including pricing trade blotters and balance sheet assets; for loan pricing purposes; and to trade against.

While the methodologies used to determine fixes are different, in all cases where benchmarks are fixed by panels, the input of the bankers is what results in the output.

When panels are convened to determine the fixed price of an instrument, and the panelists also make markets, hold as assets, and/or trade those instruments, panel participants may have an agenda in determining price outcomes.

Say, for example, you’re on a panel that determines the price of silver. Maybe your boss comes to you and says, “We have stockpiled silver, and the quarter is coming to an end. We need the price of silver to be as high as you can make it because the value of silver will impact our quarterly earnings.”

Or, say you’re a trader who has a big short position in silver, it’s almost the end of your fiscal year and your bonus will be determined as of the last trading day this week. Because you’re short silver, if you manipulate the price of silver down (by influencing the panel’s outcome), you’ll get a bigger bonus.

The problem with these panels is that they can and have manipulated benchmarks they are charged with determining, presumably in a fair and honest manner.

Big banks responsible for fixing Libor were regularly manipulating rates. So far, a group of them have paid more than $6 billion in fines for their dirty work.

Member banks of panels that determine fixings on foreign currency exchange rates have manipulated them and will end up paying billions of dollars in fines to settle those charges. And there are other ongoing investigations where regulators are looking at other instruments whose prices are determined by panels.

Well, now that the big banks are subject to huge fines for their manipulations, they are packing up their panel positions and closing shop.

That’s right. Banks that got away with manipulation for years and probably decades – and got caught – are getting out of the business of being on panels.

Several big banks, including Deutsche Bank AG (NYSE: DB), JPMorgan Chase & Co. (NYSE: JPM), UBS AG (NYSE: UBS) and Citigroup Inc. (NYSE: C), have looked at the cost of those fines and dropped out of panels.

I guess the old saying works in reverse: “If you can’t beat and cheat ‘em, leave ‘em.”

How’s that for a slap in the face?

These banks obviously feel that they can’t be honest, or that they can’t control the greed of their traders or higher-ups, who all like their big-fat bonuses, to any degree that they can stop the manipulation that’s become part of the fabric of the soiled cloth they’ve woven. Because they can’t make money cheating, they’re packing up their knitting needles.

First Comes Silver

I say good riddance to you lying, cheating manipulating bonus junkies.

It’s high time we replace panels of poseurs with transparent, real-world, market-based inputs. We’ve had the technology for years now. The old system is antiquated, and the only reason it’s still so predominant is that it’s so easily manipulated.

Silver was the first to get a makeover. Gone is the 117-year-old London Silver Fixing Market and its panel pricing methodology.

It was killed off in the middle of August this year when a new system for determining the silver fix was implemented. The new fix, the London Bullion Market Association Silver Price, is determined by actual transactions. And where there aren’t enough transactions, meaning 300,000 ounces of silver trading hands, an algorithm takes over that looks at price and volume transactions and comes up with a dirty-hands-off, free-market fix.

In case you’re wondering why silver went that route, it was because Deutsche Bank, one of the three panel members who “fixed” silver (I used quotes there, because, well, you figure it out) very publicly pulled out of the panel.

Why did they pull out? Who knows?

Maybe they were just tired of getting caught up, or caught, in the fixing game.

Source : http://www.wallstreetinsightsandindictments.com/2014/10/lets-watch-big-bank-fixers-scramble-flee/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 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