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CFTC Closes Silver Market Probe; Finds ‘No Viable Basis’ To Bring Charges

By Debbie Carlson Kitco News
Wednesday September 25, 2013 1:08 PM

(Kitco News) - The Commodity Futures Trading Commission said Wednesday it found “no viable basis to bring an enforcement action” in regards to the five-year-long investigation of the silver markets and said its investigation of the matter is closed.

“Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets,” the CFTC said.

In September 2008 the CFTC confirmed that its division of enforcement was investigating complaints that the Comex silver market was being manipulated. The CFTC rarely comments about investigations because of law enforcement and confidentiality reasons, the agency said, but “given that this particular investigation was confirmed in September 2008, the CFTC deemed it appropriate to inform the public that the investigation is no longer ongoing.”

This is the second time the agency has investigated the silver market and found no basis to bring charges.

“The division of enforcement takes complaints it receives seriously. The division will not hesitate to use its authority, including new manipulation authority in the Dodd-Frank Act, to bring market manipulation charges as supported by the evidence,” they said.

The CFTC said its division of enforcement’s investigation spent more than “seven thousand enforcement staff hours” looking into the complaints. The agency said “staff reviewed and analyzed position and transaction data, including physical, swaps, options, and futures trading data, and other documents and information, and interviewed witnesses. The division’s investigation included an evaluation of silver market fundamentals and trading within and between cash, futures and over the counter markets. The investigation was also undertaken with assistance by the commission’s division of market oversight, the commission’s office of chief economist, and outside experts,” the agency said.

Separately, the division of market oversight continued to look at the silver market contemporaneously to the division of enforcement’s investigation, the CFTC said.

The agency explained that the market surveillance function of the division of market oversight “encompasses a robust monitoring of traders’ positions and transactions at the ownership and account levels to identify potential violations of the Commodity Exchange Act and commission regulations including, but not limited to, price manipulation, disruptive trading and trade practice violations.”

These particular complaints focused on a few areas, including why the retail prices of silver products, such as coins and bullion rose, but silver futures contract prices did not. The complaints referred to publicly available information concerning the size of large traders with short open positions in the silver futures contracts, saying that the large shorts in the silver market were pressuring futures prices.

In May 2008, the CFTC said that in the past 20 to 25 years it received “numerous letter, e-mails and phone calls from silver investors” saying that silver prices were being manipulated lower. In the May 2008 report, it said that the agency wrote an open letter in 2004 that it wasn’t plausible that there was a long-term short-sided manipulation of the silver futures market.

In the May 2008 report, the agency said it decided to look at the silver market once more after allegations came up again. In its May 2008 analysis, the CFTC found that there was no manipulation in the silver-futures market, that silver cash and futures prices outperformed other precious metals markets during silver’s dramatic rise between 2005-07, and that silver futures tend to closely track physical silver prices. Additionally, the concentration levels for the top four short futures traders in the silver futures market were similar to levels seen in the gold and copper futures markets, and generally are lower than the levels seen in the platinum and palladium futures markets.

After the May 2008 report was released, news reports from the time said that the CFTC was bombarded by requests to look into the silver market again. In September 2008 the CFTC reopened the case and took the rare step to announce the investigation and the case is now closed.

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By Debbie Carlson of Kitco News; dcarlson@kitco.com,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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