Tuesday, May 26, 2015

Caught: Libor Scandal, FX Scandal and Khara & Salim - Who Else?

From the rear to the front which is always the case: Little guys do the time while the big boys just pay the fine.
Khara and Salim were two gold traders from the United Arab Emirates. They were caught using a manipulative technique known as "layering."
In this scheme you place a buy or short order out of the money. This causes the equity to process a plus or minus in futures. Then, before execution, you cancel which again effects the equity futures. The unfilled order also effects the market. The trader then takes advantage of this move to capture a gain before the equity and market returns to equilibrium.
History Repeats
It is the same scheme that Sarao used to facilitate the "flash crash" in 2012.
Looking Deeper
One realizes that the Commodity Futures Trading Commission(CFTC)isn't serious about protecting pure price discovery. This weakness always reflects back to traders who say that the metals markets is rigged. The CFTC hasn't addressed the problem.
Casey Research
has done a wonderful study into the precious metals market. In their report going back to 1970(rear to front) to today, they found that prices usually rose in the Asian Market, however, they usually tend lower in the US market. Why?
That question is what they discovered and looking deeper, they point a finger. Keep in mind that whatever the price action, it effects your wallet. Let's do an example.
If you had invested $100 back in 1970 at the London AM gold fix and sold your position at the London PM gold fix on the same day, then reinvested the proceeds the next day and did this until today, you would have $12.
However, if you just bought bullion in 1970, held it, now it is worth $2,000.
The US market consistently drove the price lower. The CFTC has never questioned this price action which is clearly anti-gold. Elke Koenig, a German financial regulator calls it, "collusion, and worse than Libor's scandal."
When you realize that this price action has been repeated for 45 years, it has to be someone with size and power like an investment bank, but it is a long ways from the rear to the front of the line.
In a token case the CFTC recently fined JP Morgan just $650K for years of data falsification on the CME. As for the Libor and FX culprits, they were fined a paltry average of $500K for years of rigging foreign exchange rates and currencies. -- Little guys do time while big boys just pay fines.