The City watchdog came under fire before an influential committee of MPs yesterday for failing to investigate the alleged manipulation of closing share prices.
Mark Garnier, the investment banker and hedge fund manager turned Tory MP, attacked the Financial Conduct Authority, saying it was an “open secret” among traders that prices were routinely manipulated in London and around the world.
Speaking at a hearing of the Treasury Select Committee into the manipulation of City benchmark prices, he said: “This is a serious issue. This is something that is very, very widely spoken about. This is not a minor thing; this is a big, big deal.” He continued: “I’m just amazed you’ve not thought about it. If nothing else this is market abuse.”
Closing prices are the most widely quoted when it comes to the value of shares in Britain’s leading companies. Substantial movements in the final minutes of trading are not uncommon.
Mr Garnier said he had contacted traders yesterday morning before the hearing to check that the problem was still widespread, and they had confirmed that it was.
Andrew Tyrie, the chairman of the committee, then said: “I think we are all amazed that this [closing share prices] doesn’t seem to have been looked at at all.”
David Bailey, the head of markets infrastructure and policy at the Financial Conduct Authority, said he would “take away” what Mr Garnier had said and then write to the committee to tell them of any work or investigations that had been done into the issue.
Benchmark prices of all sorts have been in the spotlight since the Libor interest rate fixing scandal revealed that they could be easily manipulated, and that traders were routinely involved in attempts to do just that.
Since then concerns have been expressed about a huge range of prices from metals such as gold and silver to foreign exchange rates, which are now the subject of a multinational investigation, to energy.
Appearing after Mr Bailey, Rhona O’Connell, the head of metals research and forecasts for Thomson Reuters, was asked if she thought the FCA had been “slow out of the traps” when it came to looking at the twice-daily gold price “fix” conducted by a panel of banks.
“I would say so, yes,” she replied. “It has taken a bit of time, in my personal opinion. I would have thought that once the problem came into public knowledge after Libor everything should have come in.”
Appearing alongside her was Alberto Fideres, a partner at the advisory firm Fideres Partners, which has conducted research suggesting that the gold price has been manipulated.
He said: “The evidence was there. In order to manipulate a benchmark you need means, motive and opportunity. The seeds were there. The situation is the same across a lot of markets. They evolved throughout the last century. The speed of [data] transmission has changed radically.
“When we look at Libor or FX or whether we look at gold or silver or gas or the Baltic Exchange, a lot of these present similar problems. The means to manipulate is there. There are flaws in design.”
He said prices were not necessarily manipulated every day, but that it could still happen quite often, characterising it as “opportunistic” and saying that it could involve moving prices up or down.
Only Libor is now officially regulated – and that was only brought in after the 2012 scandal. Other benchmarks remain unregulated.