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> According to the complaint, the four companies participated in twice-daily conference calls to set global price benchmarks for platinum and palladium, which a

> According to the complaint, the four companies participated in twice-daily conference calls to set global price benchmarks for platinum and palladium, which also affected derivative products based on the precious metals. I was bond trader so I don't know the specifics of the platinum and palladium markets, but my guess is they are pretty illiquid. A significant portion of it is likely traded off-exchange so discovery of the true value of the commodity is a huge issue. It sounds like these four companies see a lot of flow in one form or another and thus have a better idea of what the true market price is. They also probably have significant counter party exposure to each other through derivative contracts. Meeting twice daily to compare notes and settle on a price to adjust margin, etc. It doesn't sound very nefarious. It just sounds like a bunch of market participants trying to figure out the right price. And of course they use this information to make money for themselves - that's how a market making operation works. Now you could make the argument that regulation should push more of this type of trading onto an anonymous Exchange where price discovery is available to everyone and this drives down the information advantage that insiders have. The Government pushed that with swaps to various degrees of success. Hopefully they continue to do more of it.

josu 12y ago
You are probably right about the market being not that liquid, but it's not like illiquidity is a requirement, just take a look at the lawsuits for rigging the interest rate and FX benchmarks.
- lucozade 12y ago
  As it happens, the libor rate rigging was due to illiquidity. Specifically, illiquidity in the uncollateralised loan market. This happened because the broker-dealers stopped believing that their counterparts would still be afloat in 3 months. They required collateral and that gets funded on a daily basis. As such, the usual flow of longer term loans dried up and so the rate setters effectively had to make up the numbers. The scandal was that swap traders and management influenced their rates, not that they were made up. I agree with you on the fx rigging though. The allegations are, as i understand it, that there was collusion such that front running became viable.

josu 12y ago

You are probably right about the market being not that liquid, but it's not like illiquidity is a requirement, just take a look at the lawsuits for rigging the interest rate and FX benchmarks.

lucozade 12y ago
As it happens, the libor rate rigging was due to illiquidity. Specifically, illiquidity in the uncollateralised loan market. This happened because the broker-dealers stopped believing that their counterparts would still be afloat in 3 months. They required collateral and that gets funded on a daily basis. As such, the usual flow of longer term loans dried up and so the rate setters effectively had to make up the numbers. The scandal was that swap traders and management influenced their rates, not that they were made up. I agree with you on the fx rigging though. The allegations are, as i understand it, that there was collusion such that front running became viable.