Silver Fixing Lawsuit: Deutsche Bank, HSBC And Bank Of Nova Scotia Manipulated Daily Benchmark Price

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Silver Bars
Bars of silver are placed on wooden pallets at the KGHM copper and precious metals smelter processing plant in Glogow, Poland, May 10, 2013. The three banks that set the daily benchmark price for the metal have been accused of pricing shenanigans.

Three banks abused their power to manipulate the daily benchmark price for silver, violating U.S. antitrust laws and rules established by the Commodity Exchange Act, according to a lawsuit filed in Manhattan on behalf of traders.

The accusations come as banks have fallen under increased scrutiny since the summer of 2012 when they were found to be manipulating the daily London Interbank Offered Rate, or Libor, which affects the cost of borrowing worldwide, from business borrowing to car and home loans.

A complaint filed in a federal court in Manhattan Friday alleges London’s HSBC Holdings plc (LON:HSBA), Frankfurt’s Deutsche Bank AG (ETR:DBK) and Toronto-based Bank of Nova Scotia (TSE:BNS) established, “positions in both physical silver and silver derivatives prior to the public release of silver fixing results, allowing them to reap large illegitimate profits.”

HSBC and Deutsche Bank are the world’s second- and third-largest banks by the value of the assets they own.

Earlier this year Barclays PLC (LON:BARC), the world’s 10th-largest bank, was fined $45 million by Britain's Financial Conduct Authority after a trader at the bank admitted to manipulating the daily spot price for gold in 2012. Like the accusations made public Friday, critics argued the way the gold benchmark price is set is antiquated and ripe for abuse because the figure is established in secrecy among the world’s largest financial institutions.

"Prices should be determined by market forces of supply and demand and not due to a bank's determination,” Mark O'Byrne, research director at broker GoldCore, told AFP earlier this month.

Friday’s lawsuit filed by J. Scott Nicholson, a resident of Washington state, seeks class-action status representing precious-metal traders against the three banks that set the daily silver benchmark price. The current system of setting the silver prices is more than a century old.

The scrutiny into how banks set the base price of gold and silver has caused some to back out of the process. Earlier this year, Deutsche Bank said it would stop participating in the setting of metals benchmarks.

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