Barclays, the bank famed for meddling with Libor, was yesterday fined £26m after one of its traders rigged the gold price so as to profit on a trade at a customer’s expense.
The former senior trader at the bank was also fined and banned from working in the City, for bringing about what he termed, in City parlance, a “mini-puke” – a slight fall – in the gold price in order to win his bet.
The news came as Barclays continues to face heavy criticism over huge bonuses paid to its investment bankers, despite falling profits.
The Financial Conduct Authority described Barclays’ failures to prevent such activity as “extremely disappointing”, and pointed out that the gold-rigging occurred the day after Barclays had been fined £59.5m by the FCA for its role in the Libor-fixing scandal. Tracey McDermott, the FCA’s enforcement director, added: “Traders who might be tempted to exploit their clients for a quick buck should be in no doubt – such behaviour will cost you your reputation and your livelihood.”
The watchdog said that the bank’s own investigation into Libor should have highlighted its lack of controls in other price-setting mechanisms, including gold.
The official price, or “fix” of gold is set every day – once in the morning and once in the afternoon – by a small panel of banks, based on the average price of recent trades.
Daniel Plunkett, 38, a senior trader and director on Barclays’ precious metals desk, had entered into a bet with a customer – known as “Client A” in the case – which would have meant Barclays would have to pay Client A nearly $4m (£2m) if the afternoon gold fix was above $1,558.96 an ounce on 28 June 2012.
Initially, it seemed that Barclays could lose the bet, as the price was looking high. So, the FCA said, Mr Plunkett placed an order to sell up to 150 bars of gold – 60,000 ounces – putting downward pressure on the gold price.
The price did fall and Barclays won the bet, meaning it did not have to pay the client. The effect on Mr Plunkett’s personal trading book – which would be used for his bonus – was to make a $1.75m profit.
However, the client was suspicious about how the price had suddenly fallen during the fixing process, and that afternoon complained to Barclays, which then launched an internal investigation into Mr Plunkett’s actions, the FCA said.
During that inquiry, he repeatedly failed to mention that he had placed the gold sale trades, only finally admitting to them after the weekend, on the Monday morning, 2 July. Even then, he gave an “untruthful account” of events to both the bank and the FCA, which subsequently questioned him, the regulator said.
Barclays repaid the client the $3.9m in full.
The Independent was unable to contact Mr Plunkett yesterday. Speaking from Ireland, his father Peter said he knew nothing about the case.
Mr Plunkett, of Bishop’s Stortford, Hertfordshire, was fined £96,500. He currently lists himself as the “finance director” of a London property company, Cor-Dor, and set up a company called LMD Properties in January of this year. He had worked at Barclays since 2006, after stints at Royal Bank of Canada and Dresdner Bank, according to his entry in the Financial Services Register.
Antony Jenkins, Barclays’ chief executive who started a month after Mr Plunkett’s trade, has been talking of how he will change the culture of Barclays after the regime of his predecessor, Bob Diamond.
He said: “We very much regret the situation that led to this settlement. Barclays has undertaken a significant amount of work to enhance our systems and controls, and is committed to the highest standards across all of our operations.”
However, the FCA found that Barclays did not have any systems in place to record what gold-trading orders its traders were making until February 2013.
The FCA said Barclays should have placed more importance on the potential conflicts inherent in its gold operations, particularly as it was reviewing its procedures as a result of the Libor fine.
The overall fine on Barclays was equivalent to 1 per cent of its controversial 2013 bonus pool.
This latest scandal is likely to bring the system behind the gold fix to an end. The setting of Libor has already been changed and plans are afoot to get rid of the silver fixing mechanism, as customers of banks demand more transparent measures.
Barclays joined the gold fixing panel in 2004, but right up until last year, it had failed to recognise how its traders could manipulate the fix as Mr Plunkett did.
The other banks who conduct the fix are Scotiabank, Société Générale and HSBC. Deutsche Bank left the panel this month.
Countdown: How the price of gold is fixed
The names may have changed – ever heard of Mocatta & Goldsmid or Pixley & Abell? – but the principle remains from the first gold fix meeting in 1919. Every day, at 10.30am and 3pm, a panel of banks hold a private conference call. The chairman starts off with a proposed price for an ounce. Each member says how many bars they would buy or sell at that value. The chairman then moves the price up or down until there is an equal weight of buyers and sellers, and the price is fixed. At any time, a member – perhaps after receiving a big order – can call “flag” to start again. In the old days, they would literally raise a flag. The Barclays scandal makes it likely the only flags soon will be white as the banks give up on the whole process.
Trader talk: Glossary
“Mini-puke”: a small price fall
“Fix”: the price the Gold Fixing Members agree is the accurate market value
“Vanilla”: standard bets
“Exotic”: complex bets like the one in this case.
“Barrier”: the figure on which the two sides bet ($1,558.96)
“Digital”: a straight win-or-lose bet, also known as binary