The banks, among the world's largest, were accused of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall.
The lawsuits were filed one day after the Commodity Futures Trading Commission proposed regulations to give it greater power to thwart traders who try to manipulate prices.
The CFTC began probing allegations of silver price manipulation in September 2008, but the paper said in two previous reviews of the silver market, the CFTC has dismissed claims of manipulation.
(Repoting by Nicholas Trevethan; Editing by Ed Lane) ((Nicholas.Trevethan@thomsonreuters.com))
Keywords: JPMORGAN SILVER/
WRAPUP 2-JPMorgan cuts silver short; denies 90 pct copper data
* JPMorgan paring large silver short position-FT
* Says does not hold 90 pct of LME copper stock warrants
* In spotlight as U.S. moves ahead on tougher regulations (Changes graphic, adds Reuters Insider video)
By Frank Tang
NEW YORK, Dec 14 (Reuters) - JPMorgan's (JPM.N) commodity
business was uncomfortably in the spotlight on both sides of
the Atlantic on Tuesday amid reports it had amassed a large
copper long position and was unwinding a big silver short.While analysts and traders have said both positions could be tied to the bank's large customer trading business rather than any proprietary strategy, the reports have placed the bank in the public eye at a time when U.S. and European regulators are cracking down on commodity market concentration.
The bank, which joined Goldman Sachs (GS.N) and Morgan Stanley (MS.N) at the top tier among commodity traders with the acquisition of the RBS-Sempra operations earlier this year, is reducing a large position in U.S. silver futures, the Financial Times reported on Tuesday, citing a source familiar with the matter.
In Europe, data from the London Metal Exchange showed that a single entity had increased its control over warehouse copper stocks and cash contracts to more than 90 percent, up from a 50-80 percent holding reported for the past several weeks.
A spokesman for JP Morgan, which had been reported as holding the 50-80 percent position, denied that it held over 90 percent of stock warrants, but declined comment on whether it had a dominant position of less than that. [ID:nLDE6BD1U5]
A JPMorgan spokeswoman in New York declined immediate comment when contacted by Reuters.
The company's silver futures positions would be "materially smaller" in the future, the FT reported the source as saying.
In October, JPMorgan and HSBC Holdings Plc (HSBA.L) were
hit with two lawsuits in late October by investors who accused
them of conspiring to drive down silver prices, and reaping an
estimated hundreds of millions of dollars in profit.
[ID:nN27259071]Open interest in U.S. silver futures SIc1 has declined by nearly 20 percent since November, while prices have surged to 30-year peaks, trends that market analysts say suggest that short covering has helped fuel the gains. Prior to November, however, open interest had risen, suggesting bullish longs.
JP Morgan and HSBC were accused in the lawsuit of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall.
If they have been selling futures without an offsetting hedge since 2008, the banks would have missed out on the biggest silver rally since the Hunt Brothers attempted to corner the market 30 years ago.
Recently, prices have surged three-fold, topping $30 an ounce last week, strongly outperforming gold in the past few months.
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Graphic on silver prices and open interest:
link.reuters.com/seb22r
Reuters Insider-JPMorgan trading in the silver and copper
markets: link.reuters.com/hym89q
FT story: link.reuters.com/pyw89q
Factbox on U.S. exchange-set metals position limits
[ID:nN23100917]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
POSITION CONTROL
On the LME, traders and analysts say the so-called dominant position -- which is not unusual in LME metals -- was unlikely to be sustained and that it was probably a combination of many positions, including client holdings and positions held by proprietary traders. [ID:nLDE6B51X4]
The revelations come just two days before the U.S. Commodity Futures Trading Commission is set to propose position limits for U.S. swaps and futures contracts, rules that would prohibit any single company from holding more than a pre-set share of any given commodity derivative.
But most commodity exchanges already have so-called "accountability limits" that they use to prevent any trader from accumulating an overly large position.
A spokesman for the CME Group (CME.O), which owns the COMEX
market where U.S. silver futures are traded and sets and
enforces its own position limits, did not immediately return
requests for comment.According to CME Group's NYMEX rulebook, which also regulates its COMEX metals division, the exchange set both its all-month accountability as well as any one-month accountability levels at 6,000 contracts, with the expiration-month limit at 3,000 lots.
CME NYMEX rulebook: here#page=61
Normally, market participants, including commercial banks and trading houses, rarely exceed exchange position limits because of the cash margin requirements for large positions. Exchanges do not reveal customer names when position limits are hit.
Allegations of malfeasance in the relatively small, niche silver market predate the latest drive to clamp down on commodity markets and stem from persistent complaints from smaller players that prices are under the sway of big banks.
The CFTC began probing allegations of silver price manipulation in September 2008, but the paper said in two previous reviews of the silver market, the CFTC has dismissed claims of manipulation.
U.S. silver futures barely moved on the news, with the benchmark March silver contract SIH1 off 0.3 percent at $29.50 an ounce on the COMEX division of NYMEX on Tuesday.
Federal regulators and aggrieved investors face an uphill battle to prove allegations that two of the biggest silver trading firms are manipulating the market, if history is any guide.
The lawsuits highlighted the challenges faced by the Commodity Futures Trading Commission, which has put fighting price manipulation and fraud high on its agenda for reforming financial markets. [ID:nN01210936] (Reporting by Frank Tang and Nicholas Trevethan; Editing by Jonathan Leff and Alden Bentley)
http://www.reuters.com/article/idUSN1425443520101214?feedType=RSS&feedName=governmentFilingsNews&rpc=43
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