UBS fined for silver price manipulation

Switzerland’s regulator found “serious misconduct” by UBS employees in precious metals trading, particularly with silver, as part of its review of the bank’s foreign-exchange business.

Electronic chats played a “key” role in the improper conduct in foreign exchange and precious metals trading, the Swiss Financial Market Supervisory Authority, or Finma, said in a statement today.

It found front running, when traders profit from advance knowledge about a transaction expected to influence prices, over client orders for silver.

The Swiss regulator and those in the U.S. and U.K. ordered UBS and five other banks to pay about $4.3 billion to settle a probe into the rigging of foreign-exchange rates. Precious metals fixings, price-setting rituals dating back a century for gold and silver, were overhauled this year as scrutiny increased on how market benchmarks are set. Barclays Plc was fined in May after a trader sought to influence the gold fix in 2012.

Mark Branson UBS silver

Swiss Financial Market Supervisory Authority Chief Executive Officer Mark Branson.

“The behavior patterns in precious metals were somewhat similar to the behavior patterns in foreign exchange,” Mark Branson, Finma’s chief executive officer, said today on a conference call. “We have also seen clear attempts to manipulate fixes in the precious metals markets.”

UBS’s precious metals spot-trading desk has been part of the foreign-exchange desk since 2008 and was subject to the same control and monitoring procedures, according to Finma. Traders engaged in activities including sharing of information on orders, flows and customers as well as front-running and triggering of stop-loss orders, it said.

Bonus Caps

Finma told Zurich-based UBS to give up profits of 134 million Swiss francs ($139 million) for the misconduct and said bonuses for foreign exchange and precious metals employees globally will be capped at 200 percent of their basic salary for two years. Trading desk supervisors at UBS eventually prohibited front running in the light of the “obviousness and frequency” of misconduct, Finma said.

The investigation was from 2008 to last year, the Swiss regulator said. UBS said in a statement today that it will cooperate with related ongoing investigations. Spokeswoman Hana Dunn declined to comment further.

The bank was today ordered to pay $800 million to settle a foreign-exchange rate rigging probe. Citigroup Inc. and JPMorgan Chase & Co. will pay about $1 billion each. Bank of America Corp. was fined $250 million, Royal Bank of Scotland Group Plc $634 million and HSBC Holdings Plc $618 million, according to statements from the U.S. Commodity Futures Trading Commission, the Office of Comptroller of the Currency, Britain’s Financial Conduct Authority and Finma.

Silver bars

Precious Metals

About $5 trillion of silver and $18 trillion of gold circulated globally last year, CPM Group, a New York-based research company, estimates. Silver for immediate delivery fell 19 percent this year to $15.6849 an ounce in London, according to Bloomberg generic pricing. Gold was at $1,165.10 an ounce, down 3 percent this year.

UBS said in its annual report in March that an internal review of foreign-exchange trading included its precious-metals business. It’s accredited to take part in the new silver mechanism that began in August, though wasn’t one of the three banks last involved in the fixing for that metal. It isn’t one of the four gold fixing members, nor is it a platinum or palladium fixing member.

Mining companies to central banks to consumers use the daily price-setting procedures to trade and value metal.

This year, the U.K.’s FCA visited member banks involved in the gold fixing and fined Barclays 26 million pounds ($41 million) in May after a trader sought to influence the gold fix.

Fixing Rituals

Silver became the first precious metal to ditch the daily fixing procedure in August after Deutsche Bank AG said it would stop taking part as it scales back its commodities business. Intercontinental Exchange Inc.’s ICE Benchmark Administration will run an electronic replacement for the 95-year-old London gold fix from early next year. Four banks currently agree gold prices, based on client orders, twice a day on a telephone call.

CME Group Inc. and Thomson Reuters Corp. began running the new electronic, auction-based silver system on Aug. 15, replacing a 117-year-old ritual. It takes place daily at noon London time. The London Metal Exchange will administer the platinum and palladium replacement on Dec. 1.