Clara Denina London

Daniel Plunkett, an options trader at Barclays, became the first person to be fined for manipulating the setting of gold prices when Britain’s financial watchdog censured him and his employer on Friday.

The Financial Conduct Authority (FCA) fined Barclays £26 million (R450m) 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. Other members relay that to their customers and, based on orders received, then instruct their representatives to declare themselves as buyers or sellers at that price. The gold price is adjusted until demand and supply is matched, at which point the price is declared “fixed”.

The FCA’s 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 to contact Plunkett, who agreed to settle at an early stage, were not successful. He was banned and fined £95 600 for exploiting weaknesses in bank 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 (R45m) to Barclays. A proportion of this was attributed as a profit to Plunkett’s book, whose first payout depended on the gold price set at the afternoon fix of June 28, 2012.

If gold was fixed above $1 558.96 an ounce on that day Barclays would have to pay the customer 9 percent of the notional value of the contract at $3.9m. If the fix was lower, Barclays would not have to pay. This would boost Plunkett’s own trading book by $1.75m.

“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, and in doing so preferred his interests over those of a customer,” the FCA said. – Reuters