THIS IS A NO-BRAINER

In high finance, the most important rule seems to be that if a market can be rigged, it will be rigged.

Gold: In search of a new standard

By Xan Rice
April 14, 2014 6:01 pm
FINANCIAL TIMES

The original five bullion dealers have been replaced by five banks: HSBC, Deutsche Bank, Scotiabank, Barclays and Société Générale. But the process and traditions are little changed; had Rothschild not sold its fixing seat in 2004 the members might still be meeting in its oak-panelled boardroom with small Union Jack flags on their desks, rather than via conference call.

Every day at 10.30am and 3pm London time, the five banks join a secure conference call. The chairman – the job rotates among the banks annually – suggests an initial price, close to the market price. Each bank confers by telephone with its clients – other financial institutions and gold producers and consumers – and then declares if it is a buyer, seller or has no interest. If there are only sellers, the price is lowered, and vice versa.

Since uncovering evidence of alleged abuse by bankers of the Libor and forex benchmarks, regulators have been scrutinising other big financial benchmarks for signs of weakness. The German watchdog BaFin has requested documents from Deutsche Bank, which has put its seat up for sale, as part of a precious metals market review. Academics have questioned the fix’s fairness and suggested possible collusion. Smelling blood, US lawyers launched at least three class action suits in March alleging rigging. From being an asset of considerable prestige, a fixing seat may be turning into a liability.