BASF, three banks accused of manipulating platinum/palladium prices

Otmane El Rhazi from The Bullion Desk.

The four companies that participate in the platinum and palladium fixes have been sued in a New York court for allegedly manipulating the price of the metals.

Modern Settings LLC, a jewellery and police badge manufacturer, filed a lawsuit alleging that Standard Bank, HSBC, Goldman Sachs and BASF, the world’s largest chemicals maker, shared customer data to use the ‘front running’ method of market manipulation in which traders profit by using ‘spoof’ orders to capitalise on their clients’ trading intentions.

The banks would make large orders, it claims, to bait the market to react to what other participants believed were genuine increases or decreases in supply or demand, which they had no intention of executing, Modern Settings alleges.

“Defendants and their co-conspirators were privy to and shared confidential, non-public information about client purchase and sale orders that allowed them to glean information about the direction of platinum and palladium prices,” the suit claims. “And consequently, gave them the ability to execute trades in physical platinum and palladium and platinum and palladium based financial products in advance of those movements.”

The price of physical metal and derivatives are affected by the alleged manipulation in benchmarks because these instruments are inextricably linked to the prices, Modern Settings contends.

Modern Settings and other members of the industry have lost tens of thousands of transactions involving physical metal and PGM-based financial products because of the alleged manipulation, it said.

The platinum and palladium fixings are currently set twice a day via a teleconference between BASF, Goldman Sachs, HSBC and Standard Bank. Modern Settings claims manipulation took place “at least” during the afternoon fix.

The market makers are accused of discussing strategies and orders prior to the fix to coordinate strategies while also communicating via phone simultaneously to physical and derivatives trading desks as well as other banks’ respective desks to ensure that the prices moved in a certain pre-determined manner.

Platinum and palladium prices would frequently return to their pre-fixing levels shortly after the fixings took place, Modern Settings argues. “Experts’ statistical analyses have shown that these price moves are highly anomalous and suggestive of price artificiality,” it says.

Last month, the LBMA selected the LME to administrate the benchmarks as an independent third party – increased regulatory scrutiny of the precious metals markets and benchmarks in general has led to an overhaul of the manner in which they are undertaken.

From December 1, The London Metal Exchange will host the administration through its LMEBullion system after promising to establish an updated pricing system that will be compliant with all regulatory protocols, established by IOSCO, an independent financial industry watchdog.

But the changes have come too late for many of the parties that deal in platinum- and palladium-based products, according to Modern Settings.

The firm is representing all parties who traded or held in the US physical platinum and palladium or derivative products that settled or were marked-to-market at the fixings, NYMEX futures and options beginning as early as January 1, 2007.

(Editing by Mark Shaw)

The post BASF, three banks accused of manipulating platinum/palladium prices appeared first on The Bullion Desk.