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Section: Daily Dispatches

Traders Accuse HSBC, JPMorgan Of Silver Manipulation

Lawsuits Allege Banks Manipulated Futures Trading by Amassing 'Enormous Short Positions

By Parmy Olson
Thursday, October 27, 2010

LONDON -- Two traders have accused HSBC and JPMorgan Chase of manipulating the price of gold's smaller cousin, silver, in separate lawsuits filed in a Manhattan federal court Wednesday.

The suits allege that the two banking giants amassed "enormous short positions," and follow an investigation by the Commodity Futures Trading Commission (CFTC) ongoing since 2008.

Filed by U.S. traders Peter Laskaris and Brian Beatty, the lawsuits also date back to 2008, according to press reports. Laskaris alleges that the banks colluded on the silver futures market and let each other know about large trades, placing "spoof" trading orders.

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By working together to suppress silver futures, their call options, which represent the right to buy, would decline, making their short positions more lucrative, according to Laskaris' suit. Beatty claims to have been hurt by anti-competitive acts and market manipulation.

HSBC's press office in London could not be reached for comment.

Silver, known as "the devil's metal" among traders, has seen futures prices rise dramatically from $10 an ounce two years ago to about $24 this month. Forbes' Great Speculations blog recently quoted HSBC's managing director of Global Metals and Trading, John Levin, as saying that hedge funds love silver's volatility, but then "get carried out on a stretcher" when they try to trade it.

CFTC's own reports of November 2009 showed HSBC and JPMorgan Chase held 43% of the commercial net short position in gold and 68% of the commercial net short position in silver, according to a letter to the Commission from William Murphy, chairman of the Gold Anti-Trust Action Committee. He adds that in gold the two banks were short 123,331 contracts but long only 523 contracts, and in silver they were short 41,318 contracts and long only 1,426 contracts.

He added: "It has been possible to extrapolate that the two banks that hold these large manipulative short positions on the Comex are JPMorgan Chase and HSBC because of their huge positions in the OTC derivatives market, whose regulator, the U.S. Office of the Comptroller of the Currency, does not provide anonymity when it publishes market data."

Shares of HSBC were up by 1.3% at the open in New York while JPMorgan Chase was up 0.8%. Global X Silver Miners, an ETF that tracks the stocks of silver miners, was up by 1.1%. Miners Pan American Silver and Silver Wheaton were up by 1.1% and 1% respectively, in New York on Thursday morning.

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