Lawsuit accuses banks of silver price rigging

Three major banks have been accused of manipulating the price of silver.

HSBC, Deutsche Bank and the Bank of Nova Scotia are now subject to a lawsuit filed in the US, which alleges that the institutions abused their roles in controlling the daily silver price benchmark.

According to the suit, the banks were manipulating the base price for the benefit of their own trading prospects, to the detriment of other investors who depend on the benchmark to set the price of their transactions.

As a result the lawsuit, which has been filed by investor J Scott Nicholson in federal court in New York, alleges that the banks breached the Commodity Exchange Act and other antitrust legislation. Mr Nicholson is looking to represent investors who have bought silver future contracts since the beginning of 2007.

"Defendants have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the public release of silver fixing results, allowing them to reap large, illegitimate profits," he says in the filing.

The silver market is worth as much as $5 million (£2.94 trillion), so the potential financial losses could have been significant for many traders if the accusations are proved true. Mr Nicholson is seeking as yet unspecified damages, but it could well be a significant outlay if the case does not go in the banks’ favour.

In an email to Bloomberg, Bank of Nova Scotia spokeswoman Diane Flanagan said the bank plans to “vigorously defend” itself.

Prices have been fixed in the silver market using the same system for nearly 120 years, ever since the first benchmark was set in 1897. But this is set to change next month – when Deutsche Bank ceases to participate in the process on August 14th, London Silver Market Fixing Ltd plans to stop administering the base price.

The German Bank is planning to end its involvement in price-setting for gold and silver in London. It announced the move in January, just a month after it said it was cutting around 200 jobs in its commodities sector as well as leaving specialist trading for sectors such as base metals, dry-bulk, agriculture and energy.

Find up to date information on spread betting strategies at City Index