The so-called spoofer is mainly a kind of false quotation in the stock or futures market trading process, and then quickly withdraw the order, which leads to investors misjudge the situation and order wrongly.
An investment bank person familiar with the case investigation process disclosed that the fraud behavior of JPMorgan traders mainly occurred in two trading links: first, before the announcement of gold and silver fixed price (benchmark price), false orders were placed and the market supply and demand relationship was artificially affected to make the fixed price conform to the wishes of these traders and ensure their gold and silver derivatives trading Second, a large number of false trading orders are automatically issued by high-frequency trading software during trading hours (placing orders first and then canceling them quickly), which causes many market participants to misjudge the situation and make wrong trading, so that they can make full use of the wrong pricing in the market to profit.
The first investigation failed
Reporters have learned from many sources that the CFTCs investigation into JPMorgans silver manipulation began in 2008. During the outbreak of the subprime mortgage crisis from March to October of that year, the price of silver futures dropped by more than 24% compared with that of gold futures, which aroused the concern of CFTC, and finally led to the investigation of suspected price manipulation in the silver futures market.
In November of that year, two silver futures traders, Brian Beatty and Peter Laskaris, filed a lawsuit in the federal court of Manhattan, accusing JPMorgan Chase and HSBC Holding of conspiring to suppress silver futures and snatch hundreds of millions of dollars of illegal income by issuing false trading orders.
According to the litigation information of the two traders, since March 2008, the two investment banks have manipulated the silver futures market price by notifying each other of large-scale transactions, and issued fraudulent spooftrading orders to lower the price of silver futures. However, due to lack of evidence, the investigation ended.
Zhou Qiang (not his real name), a Wall Street hedge fund manager who has invested in precious metal futures for a long time, recalled to reporters that at that time, many hedge funds thought that the lawsuit would win a lot, although they found that in August 2008, JPMorgan Chase and HSBC Holdings held a total of 85% short selling contracts of silver futures, suspected of market monopoly. Among them, from 2008 to 2009, JP Morgan has been holding more than 40% of the short positions of silver futures on the New York metal exchange.
However, the CFTCs four-year investigation has failed to find more convincing evidence. He told reporters. CFTC has retrieved more than 100000 documents and transaction details (including a large number of trading records of JPMorgan Chase and HSBC Holdings traders), but still failed to find any clues that they are suspected of manipulating the price of silver futures. Although the CFTC acknowledged that there were some abnormal phenomena in silver futures trading on many trading days.
The above-mentioned investment bank personage who is familiar with the investigation process of the case disclosed that behind this, JPMorgan Chase has effectively covered up the behavior of fraud. For example, they classified most of the false trading orders into high-frequency trading model and placed orders automatically, which was not human-made operation. The reason why these trading orders were withdrawn quickly was that the high-frequency trading model found that the price fluctuation caused these trading orders to exist In the case of loss risk or no transaction, according to the risk aversion rules originally set by the automatic program model, only cancellation can be carried out.
In addition, JP Morgan has been arguing that the huge short positions in silver futures are risk hedging based on swap and derivatives transactions.
A lot of investors and academic research institutions are reluctant to let it go. The investment banker said. For example, Andrew Caminschi, a researcher at the University of Western Australia, studied and analyzed the trading data of silver market from 2000 to 2014, and found that the fixed price of silver on that day was 10-12 basis points lower than the average price of that day, which means that investment banks such as JP Morgan are likely to make profits by artificially depressing the fixed price of silver.
Zhou Qiang disclosed to reporters that although JP Morgan escaped CFTC investigation for a time, some financial data released by JPMorgan made the market suspicious. For example, in the first quarter of 2012, JP Morgan made 64 positive returns in 65 trading days, and only one trading day suffered losses.
How can the investment bank maintain such a high trading chance in the rapidly changing financial markets if there is no artificial manipulation of the benchmark price of certain financial transactions? He pointed out.
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In August last year, Christiaan trunz, a former precious metals trader at JPMorgan, admitted at a hearing in federal court in Brooklyn, New York, that he had manipulated and profited from precious metals prices by deception while working at Bear Stearns and JPMorgan from 2007 to 2016.
In November 2018, John Edmonds, another former precious metal Trader at J.P. Morgan, admitted that he had conspired with other traders to carry out commodity price manipulation and fraud transactions, such as issuing false and misleading false trading orders in commodity futures markets such as gold, silver, platinum and palladium, so as to profit from the unfair market he created.
It is worth noting that the price manipulation of precious metals admitted by these traders is almost the same as the improper trading behavior recognized by JPMorgan Chase. Specifically, these traders issue false orders and inject a large amount of false trading orders and misleading trading information into the precious metal futures market to deceive other investors, so as to make the price of precious metal futures fluctuate towards the price that the manipulators hope to see, thus making them obtain huge profits, while the uninformed investors suffer a lot of losses.
Edmonds also admitted that he learned this highly fraudulent trick from a number of senior traders and personally carried out hundreds of fraudulent transactions with the consent of his boss.
In addition, the judicial department of the United States also described in detail a detailed process of price manipulation that took place on October 12, 2012. On that day, Edmonds issued trading orders to the Chicago Mercantile Exchange to sell 402 silver futures contracts, which made the market mistakenly believe that the silver price was going down and followed up the sale. However, these trading orders were cancelled before implementation, and as a result, he bought at a price lower than the market price When the silver price returned to normal, he successfully collected the spread income.
In addition, many Wall Street investment institutions also found that during 2008-2012, the price trend of silver before and after the announcement of daily silver price was quite strange - before the announcement of fixed price, someone always seemed to deliberately lower the price; after the announcement of the fixed price, the silver price quickly returned to normal valuation, among which some institutions were artificially lowering the fixed price to make profits. After all, hundreds of billions of dollars of silver derivatives trading are based on fixed price as the reference benchmark. The biggest advantage of artificially lowering the fixed price is that it greatly increases the probability of profit of the silver derivatives trading position in the hands of the manipulator. Even if the price is misjudged to rise or fall, it can also avoid huge losses by manipulating the fixed price.
According to Bart melek, head of commodity strategy at TD securities, it was the confession of these former JPMorgan traders that gradually surfaced the evidence chain of JPMorgans silver price manipulation.
In September 2019, the relevant U.S. Departments filed a second indictment, claiming that eight unnamed accomplices of J.P. Morgan in New York, London and Singapore participated in improper investment transactions for many years, thus manipulating precious metal prices and cheating customers.
The defendants include Michael Nowak, former managing director and head of global precious metals division of JP Morgan, Gregg Smith and Christopher Jordan, former executive director and head of precious metals division of JP Morgan; they are accused of conspiracy to participate in racketeer infilled and corrupt organization act (RICO), and suspected manipulation of precious metal futures market Market price.
Assistant director of the FBI in New York WilliamF.SweeneyJr Said that the price manipulation methods of the three JPMorgan executives and accomplices were quite complicated, which not only affected the normal fluctuation of precious metal prices, but also caused the loss of uninformed customers of relevant banks.
According to the investment bank personage familiar with the investigation process of the case, the relevant departments found that the traders of J.P. Morgan were concocting in the gold, treasury bond futures and other markets, and artificially manipulated the price fluctuation of gold futures and treasury bond futures by using false orders and fraud. This forced J.P. Morgan to quickly agree to pay a fine of $920 million to settle the lawsuit. Otherwise, the continued in-depth investigation of relevant departments may dig out a larger price manipulation insider and evidence chain, which will cause more severe negative impact on JPMorgans reputation.
Whether the $920 million fine imposed by JP Morgan this time will completely put an end to the suspected manipulation of precious metal prices by investment banks for more than 100 years is still unknown.
Before the great changes were made in the pricing mechanism of gold and silver in 2014, the price fixing of silver and gold in London has been passed by five gold market makers (Rothschild international investment bank, Credit Suisse First Boston Bank, Scotia Bank of Canada, Deutsche Bank and HSBC) and three silver market makers (Deutsche Bank, HSBC and Scotia Bank of Canada) Compare the transaction order, and then determine the benchmark price. The price affects the profits and losses of trillions of dollars in gold and silver derivatives trading. It is worth noting that the operation mode of fixing the price of silver and gold by investment banks lasted 117 years and 95 years respectively.
However, with the abnormal fluctuation of silver and gold futures prices in recent years, disputes about suspected manipulation of gold and silver prices by large investment banks have continued since 2010, which has caused great public opinion pressure on the five gold market makers and the three silver market makers. In April 2014, Deutsche Bank decided to withdraw from the gold and silver fixed price seat in London because Deutsche Bank, HSBC and Scotia Bank of Canada were accused of abusing the special position of daily silver trading price in the United States, trying to manipulate the silver price to obtain improper profits.
Four months later, the London gold and silver Market Association (LBMA) decided to make a great reform on the formation mechanism of silver price fixing. The Chicago Mercantile Exchange (CME) and Thomson Reuters, the information service provider, took over the work related to silver price fixing, that is, CME provided the price platform and the algorithm for daily transaction processing, and Thomson Reuters was responsible for the relevant administrative management and governance work, and the new silver price fixing form The mechanism will be decided by auction instead of the investment banks decision on transaction orders, and the introduction of electronic pricing for auditing will enhance its authority and transparency.
A hedge fund manager told reporters that Deutsche Bank, HSBC Bank and Scotiabank of Canada gave up the right to set the price of silver. First, due to the pressure of relevant departments, although they have avoided the CFTC investigation, more and more local courts and judicial departments have begun to intervene in the price manipulation investigation of silver. Once the truth is exposed, the investment banks will encounter huge penalties Due to strict supervision pressure on funds and businesses, they voluntarily give up the right to say the fixed price of silver, and to some extent, they can cut some of the investigation pressure; secondly, they have the intention of losing car and protecting the coach. In the face of increasingly fierce doubts about gold silver price manipulation, investment banks would rather sacrifice the fixed price discourse power of silver and keep the fixed price of gold. After all, the financial market was mainly focused on silver price manipulation at that time. Investment banks were worried that the pressure of the investigation would soon extend to the gold field. Therefore, they sacrificed the right to set the price of silver early, hoping to calm the market investigation sentiment as soon as possible and relieve the pressure of gold price manipulation investigation.
Zhou Qiang disclosed that the reformed London silver price setting mechanism comes from the actual spot transaction price, which is no longer the so-called transaction quotation. The advantage of this is to completely eliminate some investment banks from changing the trading quotation by placing false orders, so as to make great profits for themselves.
After the great reform of the silver price setting mechanism, gold price fixing is also facing great pressure. In 2015, the London Bullion Market Association (LBMA) and London gold price fixing company (lgmfl) tried to persuade the five major investment bank market makers to jointly reform the London gold fixed price inquiry trading mechanism, including the introduction of a third-party organization to take over the management of London gold fixing price, and expanding the institutions involved in price setting and inquiry from the original five market makers to 14 global ones Large financial institutions.
It is worth noting that the Bank of England decided to release the daily composite index of the overnight index average interest rate (Sonia) of the pound from July this year to replace LIBOR and accelerate the conversion process from LIBOR to Sonia. The Federal Reserve introduced a new reference interest rate body based on the actual transaction rate of the US Treasury bond repo market They are sofr (overnight guaranteed financing interest rate) to replace LIBOR, and have achieved good results, because they have virtually raised the transparency and authority of the formation mechanism of the fund lending rate, and thus enhance the fairness of market transactions.
Counterattack of investment banks
However, the new silver pricing mechanism may not completely change the huge influence of investment banks in the silver market. After all, investment banks have huge spot and futures positions in the precious metal market, and their every move can still have a strong impact on precious metal pricing volatility.
According to the data, as of the end of July 2019, JP Morgan held about 150 million ounces of silver spot on the New York metal exchange, which once accounted for more than 50% of the deliverable silver inventory of the New York metal exchange. Therefore, all the silver market participants are closely following the silver price fluctuation report released by JPMorgan Chase, as an important reference for them to buy and sell silver.
Even if an investment bank loses its say in fixing the price of silver, it can exert influence through its huge position to make the price of silver fluctuate towards the price they expect. He said frankly.
Many reporters have learned that the reason why JP Morgan has such a strong pricing voice in the silver field stems from its acquisition of Bear Stearns. In early 1999, the God of stocks Warren Buffett bought 130 million ounces of silver. After withdrawing from the stock market in 2006, Bear Stearns quickly took over and once became the largest silver trader on the New York metal exchange. However, the outbreak of the subprime mortgage crisis in 2008 led to the bankruptcy of Bear Stearns, which almost lost the strong control of the silver market.
Fortunately, JP Morgan, as a knight in white, acquired Bear Stearns and became a big player in the silver market.
At present, JP Morgans powerful pricing power in the silver market is not only reflected in its huge stock exchange inventory and short futures position, but also in providing a large number of silver miners with structural financing products for mining, so as to grasp the latest and complete information of the actual production and supply of silver, which is enough to help them predict the price trend and profit in advance.
Whats more, JP Morgan can also change the interest rate of structured financing products to influence the miners to change the mining plan in disguise, so as to change the actual supply of silver to the data that the investment banks hope to see, and then change the price trend of silver to make profits.
According to market rumors, JP Morgan not only holds more than 500 million ounces of silver reserves, but also affects the process of hundreds of millions of ounces of silver mining through controlling the capital chain of silver miners. A source in JPMorgans precious metals division was asked to confirm, but the other side did not comment.
It is worth noting that in the early morning of October 16, the US Commodity Futures Trading Commission (CFTC) decided to set the upper limit of positions for institutions in more than 10 popular futures markets, such as crude oil and metals, in order to curb excessive speculation and price manipulation. However, whether this will weaken the influence of large investment banks such as JP Morgan is still unknown. Because investment banks can divide positions through complex transactions, they can still hold a large amount of silver delivery inventory and short position of futures under the above-mentioned new regulatory provisions, and then intervene in the price trend.
In the view of a number of hedge fund managers, there is still a long way to go to completely eliminate the manipulation of precious metal prices by investment banks. In addition to forcing investment banks to disclose the positions and trading data of proprietary trading of precious metals and treasury bonds futures in a larger scope, in order to solve the problem of asymmetric market information, the relevant financial regulatory authorities need to speed up the substantial reform of the benchmark price formation mechanism of gold and treasury bond futures, so as to make the relevant pricing more transparent and authoritative. However, this is bound to meet opposition from investment banks.
The so-called OTC model, that is, at 10:30 a.m. and 3:00 p.m. every day, representatives of the five major gold market makers, including HSBC and Barclays Bank (which became the gold market maker through the acquisition of Rothschild international investment bank), discuss the current London gold price in an office called Golden House. Specifically, the market maker holding the chairs position first gives an appropriate opening price according to the New York gold market price after the London market closing the previous night and the Hong Kong gold market price in the morning of the same day. The other four gold market makers will immediately quote the opening price to the trading room and trade according to this price, and then all transactions will be related to the supply and demand relationship of gold Finally, the fixed price is obtained.
After losing the voice of silver price fixing, large investment banks will never lose the right to fix gold price. Because the scale of gold trading and the price fluctuation of related assets have a far greater impact on the profits and losses of trillions of financial derivatives of investment banks in counter trading, which is a privilege they must fight to defend. Zhou Qiang stressed.
(author: Chen Zhi, editor: Zhou pengfeng)
Wang Xiaowu, editor in charge of the 21st century_ NF