LONDON May 23 Daniel Plunkett, an options
trader at Barclays Plc, became the first person to be
fined for manipulating the setting of gold prices by Britain's
financial watchdog on Friday.
The Financial Conduct Authority (FCA) fined Barclays 26
million pounds ($43.8 million) for failures in internal controls
that allowed the incident to happen.
The gold fix, a century-old benchmark widely used across the
industry, is set twice a day by four banks, which get together
over the telephone to work out a standard price for the metal
based on transactions between their clients.
At the start of each fixing, the chairman announces an
opening price to the other members, who relay that to their
customers and, based on orders received from them, then instruct
their representatives to declare themselves as buyers or sellers
at that price.
The gold price is adjusted up and down until demand and
supply is matched, at which point the price is declared "Fixed".
The Financial Conduct Authority's (FCA) final notice to
Barclays showed that on June 28 2012, Plunkett submitted selling
orders in the afternoon gold fixing - aimed at lowering the
final benchmark price.
Attempts by Reuters to locate and contact Plunkett, who
agreed to settle with the regulator at an early stage, were not
immediately successful. He was banned and fined 95,600 pounds
for exploiting weaknesses in the bank's systems.
He was responsible for risk-managing an options contract
that the bank had entered into with a customer a year earlier.
When entering the contract, the customer made a premium
payment of around $4.4 million to Barclays.
A proportion of this was attributed as a profit to
Plunkett's book, whose first pay-out depended on the price of
gold fixed in the afternoon gold fix of June 28, 2012.
If on that day the price was fixed above $1,558.96, known as
the 'barrier', then Barclays would be required to make a payment
to the customer of 9 percent of the notional value of the
contract at $3.9 million.
But if the price fixed below that level, then Barclays would
not make the payment. This would boost Plunkett's own trading
book by $1.75 million.
On June 27, Plunkett sent an email to commodities colleagues
saying that he was hoping for a "mini puke" the following day.
The FCA understood this to mean a drop in the price of gold
ahead of the fixing.
"He placed orders during the Gold Fixing which were intended
to increase the likelihood that the price of gold would fix
below a certain level during the Gold Fixing, and in doing so
preferred his interests over those of a customer," the FCA
"His actions had the potential to have an adverse effect on
the Gold Fixing and the UK and international financial markets,"
the FCA added.
(Reporting by Clara Denina, Editing by Veronica Brown and Susan