CFTC’s Chilton Says ‘Foolish’ Not to Review Benchmark Pricing

U.S. Commodity Futures Trading Commission member Bart Chilton said interest-rate rigging means other benchmark-pricing mechanisms may need reviews, after the Wall Street Journal reported the commission is discussing possible manipulation in gold and silver.

The CFTC is “discussing internally” whether daily price fixings of gold and silver in London are open to manipulation, the Wall Street Journal reported yesterday, citing people familiar with the situation. No formal investigation has been opened, and the CFTC is looking at various aspects of the so-called fixings, including whether they are sufficiently transparent, the newspaper said.

“Given what we have seen in Libor, we’d be foolish to assume that other benchmarks aren’t venues that deserve review,” Chilton, one of three Democrats on the five-member commission, said in an e-mailed statement today. He was referring to the investigation over the manipulation of the London Interbank Offered Rate involving about 20 banks, without elaborating. Steve Adamske, a CFTC spokesman, declined to comment yesterday on the Wall Street Journal report.

The London gold fixing is conducted twice a day by five banks: Barclays Plc, Bank of Nova Scotia, Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA. The pricing started in 1919 and was conducted in a meeting held at N.M. Rothschild & Sons Ltd.’s offices. It began taking place by telephone in 2004. Some mining companies use the fixing to sell output. The silver fixing is conducted once a day at midday.

Bank Responses

David Rose, head of metals trading at HSBC, and Martyn Whitehead, head of metals sales at Barclays, declined to comment. Sebastian Howell, a spokesman for Deutsche Bank, and Ila Kotecha, a Societe Generale spokeswoman, declined to comment. Joe Konecny, a spokesman for Scotiabank, didn’t immediately return a voicemail message seeking comment.

An average of 19.8 million ounces of gold were traded daily last year, according to the London Bullion Market Association, which has members in 139 companies. Aelred Connelly, a spokesman for the LBMA, and Marcus Grubb, managing director of investment research at the World Gold Council, declined to comment when asked about the fixings.

Chris Hamilton, a spokesman at the U.K. Financial Services Authority, declined to comment on whether it was looking into the gold and silver fixings.

The FSA’s Managing Director Martin Wheatley and CFTC Chairman Gary Gensler are chairing an International Organization of Securities Commissions taskforce that is looking specifically at all benchmarks that could potentially be open to abuse similar to LIBOR, the FSA’s Hamilton said.

LIBOR Investigation

Barclays, UBS AG and Royal Bank of Scotland Group Plc have paid a combined $2.5 billion in fines stemming from an investigation over the manipulation of LIBOR. The FSA opened its investigation into rate manipulation in early 2010, a year-and-a-half after the CFTC commission’s probe.

“The idea that pervasive manipulation, or attempted manipulation, is so widespread should make us all query the veracity of the other key marks,” Chilton said on Feb. 26, according to a copy of a statement posted on the CFTC’s website. “What about energy, swaps, the gold and silver fixes in London and the whole litany of ‘bors?’ Why would they be any different in the minds of those that may have sought to push or pull rates? For me, this means every single mark needs to be reviewed, and potentially investigated.”

The enforcement division of the CFTC began pursuing allegations of manipulation in the silver market in September 2008. Chilton said in August that there had been “devious efforts” to move prices of the precious metal.

Gold Fixing

Fixings begin when the chairman states an opening price which the members relay to customers before declaring themselves as buyers or sellers at that price. If there are only buyers or only sellers or the bars to be bought or sold don’t balance, the price is moved until there’s a balance and the price fixed.

Deutsche Bank, Scotiabank and HSBC conduct the silver fixing by phone. The first settlement was in 1897, according to the London Silver Market Fixing Ltd.’s website.

Gold was fixed at $1,586 an ounce in London this afternoon. The metal for immediate delivery, which trades throughout the day, was at $1,589.86 at 12:34 p.m. New York time, down 5.1 percent this year. Prices rallied the past 12 years in the longest run in at least nine decades.

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