Ex-Moore Trader Chris Pia Identified As "Close Banger" Of Platinum And Palladium, And Other Things
As frequent readers will recall, in late April we pointed out that a Moore Capital ploy to "bang the close", which is merely a trading artifice in which the closing price is manipulated by repeated barrages of buy or sell orders to get a closing print that causes a derivative instrument to be in (or out of) the money, resulted in a then near-record fine charged by the SEC to go alongside a settlement of manipulation allegations. We then observed: "As the saying goes, if you look around the table, and you can't figure
out who is using illegal manipulative mechanisms to push the market
higher or lower, you are an idiot: the answer is all of them." Well, we know the manipulator is Moore, but not who the specific trader was. Today, via the WSJ, we learn that the guilty person is none other than former Moore trader, and recent sole hedge fund manager, Chris Pia, who also happens to be Louis Bacon's right hand man for 18 years running. We also learn that platinum are palladium were merely two of the numerous products that Chris was banging (into the close). And the coolest thing: Mr. Pia is now running his own hedge fund Pia Capital Management, as if nothing happened (although the anchor Swiss gold-refining investors in Pia Capital may soon have to reevaluate their relationship with the PM (no pun intended) at this point). One also wonders if these were the accepted illegal trading practices at Moore (for which they got caught) just what else is the $10 billion hedge fund guilty of doing on a daily basis to attain that ever more elusive alpha (the 7x return that Pia generated in 8 years at Moore sure wasn't from holding T-Bills).
From the WSJ, we learn that Pia is a perfectly normal, calm, collected, orthodox person, just like most other happily married, responsible, hedge fund managers:
Mr. Pia liked to tell colleagues about his modest upbringing, and that
he is a devout Catholic. He complained about hedge-fund managers he
considered elitist. On the trading floor, he often twirled a string of
rosary beads. Callers to his cellphone heard the Batman theme song.
Yet it is not his character we are interested in, but his precious metals manipulation scheme, which while applicable to platinum and palladium, is perfectly relevant to the daily gyrations, especially prior to Comex close, in gold and silver.
"As you get down the scale to commodities like palladium, futures markets are almost by definition less liquid and more susceptible to this kind of conduct," says Scott Early, a securities lawyer and former general counsel of the Chicago Board of Trade. But it becomes easier for regulators to catch such activity in thinly traded markets, he says.
Closing prices in futures markets are set differently than they are in the stock market, where they are determined by the last trade each day, at 4 p.m. In the futures market, the "settlement," or closing price, is the weighted average of all trades during the last few minutes of trading. For palladium, for example, the "closing period" is from 12:58 to 1 p.m., and for platinum, it is 1:03 to 1:05 p.m.
Traders can push settlement prices around by inundating the market with orders during the last two minutes of trading. Trying to push prices higher in that way—banging the close—is in some cases considered market manipulation under commodities laws. It is loosely akin to an illegal stock-market practice known as "pump and dump," where traders push up the price of thinly traded stocks by disseminating misleading information, then sell shares before the price falls again.
In 2008, several traders complained to the New York Mercantile Exchange about someone entering the market near the close and aggressively buying platinum and palladium futures contracts, two people familiar with the matter say. Around the same time, the CFTC began detecting unusual trading patterns in the two markets. CFTC enforcement lawyers began questioning Mr. Pia about his trading, says one of the two people.
The CFTC complaint against Moore doesn't specify the day or days on which the trades in question took place, nor does it disclose whether Mr. Pia was the trader involved.
Often, at 12:58 p.m., two minutes before the close of the palladium market, the unnamed trader—Mr. Pia, according to people familiar with the matter—or an associate would send instant messages to a trader in that market with "directions that indicated that he wanted to push prices higher," according to the CFTC complaint. That trader waited until the last 10 seconds of trading to relay the high-priced orders to a floor clerk in the trading pit of the New York Mercantile Exchange, the complaint said. Moore sometimes repeated the sequence during the closing period for platinum futures, the complaint said.
Fewer than 10 traders typically participate in the thinly traded market for palladium, the CFTC said, and the Moore trades accounted for most of the volume in the two markets during the closing period.
In a series of interviews, CFTC investigators asked Mr. Pia whether he intended to push prices higher through the trading in question, according to one person familiar with the matter. Mr. Pia denied doing anything wrong. He admitted to waiting until the last minute to place the orders, but said he simply was buying what the floor traders were selling and the market would go up, this person says. Mr. Pia said his last-minute timing was intended to thwart rival traders who often would try and buy ahead of Moore's orders, this person says.
And guess what: the CFTC is likely buying this. We are confident in this because they are actually confused by Pia's apparetn motives:
The ongoing CFTC investigation is looking into whether Mr. Pia tried to
boost his compensation through the trades in question, according to a
person familiar with the investigation. Among the questions being
examined by the CFTC is whether Mr. Pia was trading ahead of Moore's
commodities orders through a portfolio he managed within the firm,
possibly in an effort to increase his pay, this person says. Such
tactics can give traders an unfair advantage because pending
orders—which aren't known to the public—can affect prices when executed.
In other words, in addition to manipulating thin volume closes, was also allegedly frontrunning internal (presumably prop although Moore is so big it may well have been flow) trades. One would almost think Pia took a master class in market manipulation at Goldman. Oh wait:
In 2008, for example, Mr. Pia entered into a trade under which Moore would get a $25 million payout if the New Zealand dollar rose to a certain level. Goldman Sachs Group Inc. was on the hook to make the payout. If that level wasn't hit, Moore stood to lose $1 million.
As the trade's expiration date approached, the New Zealand dollar was trading about 25 cents below the price at which the contract would pay out. Mr. Pia got clearance from top Moore officials to spend billions buying New Zealand dollars, hoping the currency would hit the set price, according to the person with knowledge of the trade. Fifteen minutes before the contract expired, Mr. Pia began buying billions of New Zealand dollars, lifting the currency to the price at which Moore was able to collect the $25 million, the person says.
Gary Cohn, Goldman's president, later congratulated Mr. Pia on the trade, the person says.
Yes indeed, to Goldman such practices were not only not worth pursuing legal action against (who needs capital when you have discount window access and are, after all, the squid), but in fact, were laudable and worthy of commendation. Oh yes, and it appears that in addition to platinum and palladium, Pia was guite a close banger of the NZD, and who knows what other currencies. Perhaps the CFTC will tells us that the FX market is as thin as the palladium one, and just 10 people give or take trade carry pairs? (Actually that may be quite true right now that nobody trades any more, but it surely wasn't the case in 2008).
We don't have any bad blood with Mr. Pia: "The new fund, headquartered in Greenwich, Conn., has about $500 million under management, and is down 0.6% for the year." Since it is relatively difficult to be down (or just barely up), if performing alleged illegal market manipulative scams, we are confident he has learned his lesson. Yet for every Pia, there are 1,000 LBMAs, who perform precisely the same act on the Comex all day every day, in an attempt to constantly push down the key Central Banker nemesis: "gold." We are confident that the CFTC and the DOJ will get right on with their investigation of comparable manipulation in the gold and silver markets. Because after all, nobody has anything to hide there... And gold would still be where it was if it weren't for consistently shady PM activity in the market.
We hope Mr Pia will come forth to the media out of his own volution and discuss what else the broader public should be aware about manipulative practices, be they in the FX market, or in commodities. Alas, we are not holding our breath. Nor are we holding our breath that the DOJ, which has now be ruminating for about about 4 months as to whether or not to launch an investigation into silver market manipulation by JPM, will ever come to an affirmative conclusion. After all, they have said on so many occasions there is absolutely nothing wrong with the PM market, how can one possibly not believe them?...