Deutsche Bank, UBS and HSBC to settle civil regulatory charges over "spoofing" in precious metals

Deutsche Bank, UBS and HSBC will pay around $47 million to settle civil regulatory charges that some of their traders engaged in spoofing in precious metals. Deutsche Bank will pay $30 million while UBS will pay $15 million of that total following an extensive investigation by the Commodity Futures Trading Commission (CFTC) that also names six individuals. HSBC will pay $1.6 million. The probe received cooperation from all the banks.

Further, the justice department said yesterday that it has charged eight individuals with crimes related to deceptive trading, including seven who have been charged with spoofing. Five of the people were employees of global financial institutions, while two are traders at large commodities trading firms and one is owner of a technology consulting firm.

In spoofing traders place buy and sell orders with the intention of cancelling them before completing the transactions. An illusion of demand is thus created, which distorts prices in a way that benefits the trader's positions. High-frequency trading, which involves traders using computers to rapidly trade in and out of positions, has been a focus of investigators.

According to the justice department, the traders ranging in age from 30 to 55, face accusations of manipulating various futures markets, including S&P index and precious metals, by placing hundreds, in some cases thousands, of "spoof" orders to induce other market participants to trade at prices, quantities or times they otherwise would not have traded.

"The defendants in these cases engaged in sophisticated schemes or trading practices aimed at defrauding individuals and entities trading on US futures exchanges,'' said John Cronan, the acting head of the department's criminal division, referring to the eight individuals, Reuters reported. ''Conduct like this poses significant risk of eroding confidence in U.S. markets and creates an uneven playing field for legitimate traders and investors."