The case against JPMorgan Chase for manipulating precious-metals and Treasury markets has many of the usual features. On September 29th it admitted to wrongdoing in relation to the actions of employees who, authorities claim, fraudulently rigged markets tens of thousands of times in 2008–16. The bank agreed to pay $920m to settle various probes by regulators and law enforcement. Some of the traders involved face criminal charges. If convicted, they are likely to spend time in jail.
The traders are alleged to have used “spoofing”, a ruse where a marketmaker seeking to buy or sell an asset, like gold or a bond, places a series of phoney orders on the opposite side of the market in order to confuse other market participants and move the price in his favour. A trader trying to sell gold, for instance, might place a series of buy orders, creating the illusion of demand. This dupes others into pushing prices higher, permitting the trader to sell at an elevated price. Once accomplished, the trader cancels his fake orders.
The practice was explicitly outlawed in America in 2010, but the rise of algorithmic traders — which rapidly analyse order books to work out where prices might move next — has made it more tempting for human traders to spoof them. According to prosecutors one JPMorgan trader described the tactic as “a little razzle-dazzle to juke the algos”.
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