CFTC's Chilton Admits Silver Market Subject To "Fraudulent" Influences, Says Manipulation Should Be Prosecuted

Tyler Durden's picture

If this is not some nasty and quite early April Fool's joke, this is very, very bad news for JPMorgan:


Now... where are all of those tin foil hats...

The below has just appeared on Reuters. It seems the CFTC has its cross sights on quote stuffers. It is about damn time.

The U.S. futures
regulator laid out plans on Tuesday for how it could use new and
beefed-up legal tools to foil traders who seek to manipulate prices or
defraud investors.

The Commodity Futures Trading
Commission said it also wants to ask for comments on whether to crack
down on certain practices used by high-frequency traders -- such as
"quote-stuffing" -- but it stopped short of immediately proposing new
rules specifically aimed at algorithmic trading.

its latest set of proposed regulations following a sprawling Wall
Street reform law, the CFTC sought to clear up some confusion about its
traditional test for price manipulation, an effort to improve on its
dismal record of having won only one such case in its 36-year history.

rule, which will apply to all markets overseen by the CFTC, including
swaps, also creates a "broad, catch-all anti-fraud provision" that does
not require the CFTC to prove a trader fully intended to cause fraud,
CFTC officials said.

The agency's
only successful manipulation prosecution was against a broker charged
with manipulating settlement prices for electricity futures in 1998.

More recently, manipulation charges against four propane traders with BP (BP.L)(BP.N)
were dismissed by a judge, who called the law "confusing and
incomplete." BP agreed to pay a record $303 million to settle related

CFTC officials who briefed
reporters on the new package of proposed regulations declined to say
whether the rules would have helped them make their case against the
propane traders.

The agency's five
commissioners, including Chairman Gary Gensler, will vote at a public
hearing on Tuesday on whether to advance the proposal for public comment
for 60 days.

After staff consider
whether to make changes based on comments, the commissioners will need
to vote again to finalize the plan by next July.

new rule seeks to marry existing anti-fraud and anti-manipulation
authorities together with a new section that "fills in all the gaps", an
official told reporters.

regulations address "plain vanilla" person-to-person fraud, and price
manipulation, such as market "corners" or "squeezes", he said.

the new provision could capture manipulative trading activity that
"could potentially fall out of one of those two buckets", he said.

price manipulation cases required the agency to prove traders had the
intent and ability to manipulate prices, tried to do so, and caused an
"artificial price".

That four-part
standard will continue to exist, but the CFTC included guidance that
"artificial price" means a price affected by illegitimate market forces,
the official said.


The Dodd-Frank law also requires the CFTC
specifically to ban three disruptive trading practices as of July 16,
2011 -- a ban that does not require new regulations to take effect.

are "spoofing", whereby traders make bids or offers but cancel them
before execution, and "banging the close" -- acquiring a substantial
position leading up to the close of trade, then offsetting the position
in the final moments to manipulate the closing price.

agency has no obligation on whether to go further, but wants to gather
more comments during the next two months about whether it should close a
potential loophole in the spoofing ban, or prohibit any other practices
deemed disruptive.

That will
include "quote stuffing" -- flooding the market with large numbers of
rapid-fire orders and then canceling them almost immediately -- a
practice that some have argued contributed to the May 6 stock market
"flash crash."

The agency will also ask whether it needs to write rules requiring traders to test and monitor their algorithms.

months, CFTC commissioners have said the agency needs to use its new
powers to counter disruptive trades made by high-frequency algorithms.

Chilton, a Democratic commissioner, and Scott O'Malia, a Republican,
have said regulators should hold traders responsible for "rogue algos"
that hurt markets.

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LongSoupLine's picture

Silver bullet to the head bitchez!

Slash's picture

yeah ok.....all talk........I'll believe it when I see someone in cuffs.

frankTHE COIN's picture

Preferrably leopard lined, with a hint of pink.

dlmaniac's picture

I was wondering what heck was going with the silver chart today until I read the news.

Great! Nail JPM's naked @$$!!!

El Hosel's picture

 One down!


The CFTC's only successful manipulation prosecution was against a broker charged with manipulating settlement prices for electricity futures in 1998.

JLee2027's picture

Quite a record for 35 years of market oversight.

WaterWings's picture

The new rule seeks to marry existing anti-fraud and anti-manipulation authorities together with a new section that "fills in all the gaps", an official told reporters.

And now they are consolidating all the Crusaders for Troof! Don't worry folks! We're on it! 

This ain't the wind of change - it's that quiet moment before nuclear detonation.

knukles's picture

Reminds me of rumblings from stool softeners.

DosZap's picture

Cuffs?,screw that, ROPES!.

If shit doesn't start improving we are going to a re-visit  French Revolution moment.

Wait till those 16 million folks stop getting extended  U E Bene's.

THAT is the only reason we are still in any semblance of order.

ratava's picture

the key is in the interpretation of FRAUDULENT by the current establishment. we mean taxing silver with VAT in EU. they mean us being long electronically, thus speculating on their incompetence. 

mogul rider's picture

you have a point, there will never be trials becuase Americans will never rise up. Instead they'll sit down in front of their 72 inch TV's and immerse themselves into TMZ hoping,, jsut hoping, that it'll all go away and they too can return to serfdom where it's warm and safe

Chappaquiddick's picture

The prosecutions don't matter to me - what I'm interested in is the effect that this has on price.  If my understanding is correct then we're about to witness the end of entrenched price suppression which might mean a very large pay day at JPMorgans expense - this is great news for all silver bulls! 

DosZap's picture


I am with you on the EFFECT.

However, we WERE a nation of LAWS.

If these are not applied to everyone, we are setting a stage for a really bad ending.

People can and will come to a break point,we are not far from it.

Just like this CROOKED assed voting in Nevada, touch screen voting, already checked for REID,when the lady wanted to vote for Angle, the same thing happened to aroung FIVE others there.

If you can't win by pop vote,CHEAT.

Folks have had enough of this shit, and are more tired of eating it.

El Hosel's picture

   "The prosecutions don't matter to me"...

   Nice, "I don't car about justice as long as I get my payday".... Isn't that exactly how we got here?

Chappaquiddick's picture

Please don't give me a bleeding heart moralising lecture - you can kiss my arse.  This free for all is every man for himself and I'm happy to suffer survivor guilt rather than be gobbled up and shit out by these gangsters.  Anyway, they don't need prosecuting they need electrocuting, but they'll let them off.  The system does the exact opposite of what common sense and decency would normally dictate.  So you play 'em as you find 'em. Whatever happens to them is not something I am concerned about.

PS: Just in case you're wondering I don't junk people.

Turd Ferguson's picture

Important comments from Dan Norcini:


Posted: Oct 26 2010     By: Dan Norcini      Post Edited: October 26, 2010 at 2:05 pm

Filed under: Trader Dan Norcini

Dear CIGAs,

The silver market was abuzz with news today about CFTC Commissioner, Bart Chilton, concerns over price manipulation. The fact that he has come out so publicly took many, outside the camp of GATA and others, by surprise and lit a fire under that market which took it up into a resistance area near $24 on the charts. Strength in silver then worked to pull up gold which had been under pressure from the falling Euro and the subsequent bounce towards 78 in the Dollar.

You have to wonder about the many who have insulted GATA and its fine work over the years and ridiculed them in such a derogatory fashion whether they will now have the common decency to apologize for their shameless and contemptuous treatment of my friends Bill Murphy and Chris Powell and all the other dedicated members of the GATA board. The fact that Commissioner Chilton has come out so forcefully and chosen to use the words, “fraudulent” and “devious” in regards to the silver market is remarkable for its clarity and frankness. He was careful not to come to a conclusion about actual manipulation but as he pointed out, attempted manipulation is an entirely different matter. Based on his own words, it is evident that he strongly believes that attempted manipulation has been occurring regularly.

From here on, those who refer to GATA and its supporters as “the tin foil hat” crowd are only making fools out of themselves and revealing themselves to be mere hacks of the bullion bank crowd. GATA can no longer be dismissed as some sort of rogue band of disgruntled “gold bugs” but as the fine group of people that they are; people who share a genuine concern for the integrity of our financial markets and whose tireless research and efforts on the part of the precious metals markets deserves to be given the respect that is due to any organization which has produced work of the nature and quality that GATA has. I am not holding my breath however; very few are able to conquer their own pride and remain slaves to it all their lives. It takes a man of real character to admit he was wrong. Generally speaking, the most vocal opponents of GATA seem lacking in this department.

Hats off also to Commissioner Chilton for having the integrity to follow through on this even in the face of what no doubt must have been some very strong opposition. It is refreshing to see a man who actually takes what he does seriously and is working in the interests of the general public and not just a few favored special interests. If you have not done so, please take the time to send him an email encouraging him and thanking him for his efforts. So often men in his position only get emails or letters haranguing them

the not so mighty maximiza's picture

All Manipulation should be prosecuted, tin foil hat not required.

MarketTruth's picture

No one will ever get prosecuted. Sad, yet true. JPM was already found guilty of charging PM storage fees to their clients yet they never purchased and held said asset and all they did was pay a small 'fee' (no jail time). As such, this is a two-fold fraud as they took money for storage of non-existent metals PLUS they never purchased said metals and thus taking out of the open market where it would find its true value accordingly.

JLee2027's picture

My take is when the Government officials start talking about Market manipulation they are ready to indict people.

the not so mighty maximiza's picture

I know your right,  I am just dreaming.

Attitude_Check's picture

I think the politico's have now decided the banksta's are too much of a liability.  They will throw them to the wolves in an attempt to save themselves.

El Hosel's picture

      "I think the politico's have now decided the banksta's are too much of a liability"

 Does this mean no more botox?.... and $500 haircuts? ..... "The horror"

TuesdayBen's picture

A few of my ex-girlfriends would be frightened to hear that...

espirit's picture

Proof is in the puddin'.  Show me the silver, the prosecution, or any evidence that this intent is more than idle worthless words, and I'll apply the appropriate credibility.

I'll repeat these worthy words:

With gold or silver

in possession,

one can choose which fiat has the best potential,

 if any.


Bartanist's picture

The shine is wearing off Jamie Dimon's silver studs?

DoChenRollingBearing's picture

Urgent note to ZH-member JonNadler!

Your position there as Sr. VP at JPM is in danger!  Please call Jamie ASAP!

JonNadler's picture

Am calling, DoChen am calling, the sob won't pick up! Oh my, am lost, even my JP Morgan bodyguard goons didn't show up to protect me today! My platinum card is not working! And Chilton? Jamie assured me he was in the payroll!

DoChenRollingBearing's picture

Touché, JonNadler!

I hope you were able to loot a case of Lafite when you had your chance!

Maybe the goons have been let go as well?

eigenvalue's picture

Since the silver market is heavily manipulated and JP Morgan is quite strong, why not try something else. Say cotton, much stronger fundamentals and less manipulation. The Chinese are buying every bale of cotton in the world! No shorts can fight the Chinese Dragon!!

Panafrican Funktron Robot's picture

Been making a lot of money over the past year buying greater than 3% dips in any commodity and selling intraday the next day. 

Gene Parmesan's picture

Will I need to get a bigger floor safe?

Rusty Shorts's picture

Yes you will, and dump the Tin Foil hat, upgrade to Silver Foil, as I have.

Gene Parmesan's picture

Does silver foil have a shiny side? If not, how can you tell which side should face out?

24KGOLD FOIL HAT's picture

I am hammering and shaping my 995Platinum foil hat.

Oh regional Indian's picture

Eigen, you cannot eat, store or actually use your cotton positions in any place outside of the corrupt system. 

Add the fact that currentsea manipulation and potential "controls" coming, whether on capital flows or even commodity flows (rare earths as an example), staying and playing inside the belly of the beast just does not make sense anymore.

Even if you took other Ag. futures like wheat (the russia export ban story), all ags are headed up. 

But the place where they are traded is not to be trusted. The new mantra seems to be, "All trades can be unwound".




MeTarzanUjane's picture

Just one question for your Highness. The other day when China announced that they are cutting Silver exports by 34% why didn't the price move?

I would expect a 1/3 cut from such a large supplier in a rare earth that has an overwhelming demand to set off a crackboom in price.

What gives Oh Regional one?

tmosley's picture

People don't care about supply of silver, as it has never been supply constrained in their trading lifetime.  Supply won't matter until there is none, and then it will be the only thing that matters.

MeTarzanUjane's picture

+1! I like your jokes. They are funny.

tmosley's picture

Ok, I don't think you understand what I mean.  Let's say that the silver market is a guy.  He has a job, and gets paid on a regular basis, in the form of silver coming out of silver mines.  He also has expenses, in the form of silver used for industry or investment (physical delivery of silver).  Now, he has a bank account called the COMEX.  He has been depositing money from his mines in said bank account for decades, which they gladly took, and gave him certificates saying he had the silver in the account.  Now, over the last 30 or so years, Mr. Market has been spending more silver than he puts into the bank, but the COMEX has been falsifying his statements, saying he has more silver than he has.  As such, he has not moderated his spending.  Currently, he is spending twice as much as he makes in a year.  Mr. Market knows this, as this has been the case for decades, but he has extra savings in an account called SLV.  Thing is, the silver that is supposed to be in that savings account isn't there--it was lent to Mr. Market himself for more spending long ago!  What happens when he goes to make a withdrawal, and there is no silver in either account?  How is Mr. Market going to pay his bills?

Simple, he's going to have to clamp down on his spending, and do anything in his power to get more silver.  This means higher prices, as consumption of silver must be brought in line with production, but this won't happen until there is a default, or until the COMEX admits to the fraud that has been going on.

MeTarzanUjane's picture

Circular logic makes Tarzan sleepy.

I say outlaw silverware and replace it with plastic-ware and demand for silver in manufacturing would come to a halt overnight.

Silver price would be bad, Tarzan like.

andy55's picture

Separate but related story...   I've owned a double digit number of 1000 oz silver bullion bars at Monex for almost two years now and am researching taking delivery by opening an individual account at the same depository used by Monex (Delaware Depository Company).  This way, "delivery" will amount to bars (i.e. serial numbers) being allocated to my account and will be completely out of the bullion trading/paper system.

The more I dig, the more I uncover that companies like Monex really just own a very small number of allocated units (and meanwhile scalp profits off their clients trades and/or charging leasing fees for paper assets that only exist internally).  In other words, Monex and bullion "banks" like them have a surprisingly scary implied reserve ratio, which allows them to massively multiply revenues while keeping costs constant.  Try asking them to disclose any records about the ratio of silver claims vs allocated holdings and watch how fast that becomes an "unreasonable" and "unusual" request.

My research shows that to store and insure at a depository (in my case the Delaware Depository Co, the main depository used by Monex), it's 0.75% (annualized) times the spot value of the account.  At current prices this is about $180 per 1000 oz bar per year.  Meanwhile, Monex charges a flat fee of $60/year per bar ($5, billed monthly).  So right there that shows Monex must have less than 1/3 of their total client claims allocated in order to break even with depository service costs alone. Segregated accounts at DDC (Monex would need to have a segregated account), are 1.5% times spot value of the account, meaning Monex has to use a reserve ratio of about *1:6* just to break even! 

So if people ever start taking delivery of silver bullion from these banks, silver prices will see a discontinuous jump as all the Monexes of the world are forced to buy to cover holes made by clients taking delivery.  Now, how likely are grandma and grampa to take delivery of a 1000 oz bars weighing 62 pounds each?  Not likely at all, so this allows companies like Monex to use a scary silver reserve ratio (probably less than 10%) -- and get away with it!  Who knows how low the reserve ratio *actually* is for these private institutions, and if/when things do break down, then a LOT of them will blow up and leave people who thought they owned bars with nothing but paper claims to a company filing for bankruptcy. 

No thanks.'s picture

1000 oz bars weighing 62 pounds each

Converting troy ounces to avoirdupois yields 68.75 pound bars.

1000 x 1.1 / 16 = 68.75

Without the conversion 1000 troy ounces equals 83.33 troy pounds.

1000 / 12 = 83.33

andy55's picture

There ya go -- can't say I have much experience with bullion weight conversion, so thanks for the correction there.  Anyway, methinks grams and gramps will be just as unlikely to take delivery of even one bar until it's too late.

Sean7k's picture

Silver, gold etc: 12 oz= 1 pound  1 oz= 31.14 grams

Avoirdupois 16 oz= 1 pound  1 oz= 28 grams

12x31 =372 grams/28= approx. 14 oz

PM's weigh more per oz but less per pound than you are used to.

Spigot's picture

By all means, and as quickly as possible, get out of MONEX. They messed me over back in the late 90's and I can assure you that they will try to do that to you as well. Its like entrusting the security of virgins to a gang of rapists.

hbjork1's picture


So they were still at it in the late 90s?

I had the Monex "experience" back in the early 80's.  They might have been new then but my experience was the same as yours. 

Got out and stayed away. 

Oh regional Indian's picture

Very interesting indeed. 

So, are you going to take full physical in your basement now?

I think you should. 


Temporalist's picture

For people that can affored 1000oz bars they should be able to buy a safe in take some delivery not all.  Even a start of the flow from out of the depositories will influence the price.

Hell they could dig a hole and cover it in cement and put a flag on top.

Oh regional Indian's picture

MeTuJ, two things give.

1. Silver is not counted as a rare earth element  like all the un-namable rare earth's are. Here is a good article, giving you a real rare earth update. So, the two stories are not connected. Plus, as you will read, genuine rare earth's are at the heart of a lot of newtech. Also, a lot of Industrial silver users have industrial silver stock (Physical). Not so with RE's.

2. Silver is a highly manipulated/leveraged market. Not true for RE's, nowhere at the same scale and nowhere in the same monetary volume and most importantly, nowhere as important in the "monetary" big picture.

A few more things give, but I'll spend the time to write if you spend the time to read.