The Phaserl


Barclays’ Gold Manipulation Leads to New U.K. Scrutiny of Derivatives Conflict

The London gold fixing is a ritual dating back to 1919. Today, it’s led by representatives from four banks who on, a daily conference call, agree on a price at which the metal is bought and sold.

by Dave Michaels, Suzi Ring and Julia Verlaine, Bloomberg:

Britain’s markets regulator plans to scrutinize the conflicts of interest banks face when they use derivatives after fining Barclays Plc (BARC) for manipulating the price of gold to avoid a pay-out to a client.

The Financial Conduct Authority will examine how investment banks manage such conflicts in coming months, with so-called barrier options “one of the most obvious examples of a conflict,” Chief Executive Officer Martin Wheatley, 55, said in a June 4 interview in New York.

The FCA last month fined Barclays 26 million pounds ($44 million) after finding a former trader had suppressed the London gold fixing on June 28, 2012 to avoid paying out $3.9 million to a client who had taken out a barrier option with the London-based bank. Such contracts are a winner-takes-all bet on whether an asset will reach a certain price or not.

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