In re London Silver Fixing, Ltd., Antitrust Litig.

• Decision Date: 25 July 2018
• Docket Number: 14-MC-2573 (VEC),14-MD-2573 (VEC)
• Citation: 332 F.Supp.3d 885
• Parties: IN RE: LONDON SILVER FIXING, LTD., ANTITRUST LITIGATION This Document Relates to All Actions
• Court: U.S. District Court — Southern District of New York

332 F.Supp.3d 885

IN RE: LONDON SILVER FIXING, LTD., ANTITRUST LITIGATION

This Document Relates to All Actions

14-MD-2573 (VEC)

14-MC-2573 (VEC)

United States District Court, S.D. New York.

Signed July 25, 2018

OPINION AND ORDER

VALERIE CAPRONI, United States District Judge

This case began as a benchmark-fixing case. Until 2013, the price of silver bullion was set in part through a daily private auction among a small group of silver dealers ("the Silver Fixing"). Based on a sophisticated econometric analysis of thousands of price quotes from the silver markets, Plaintiffs alleged that this daily private auction was a cover for a conspiracy among the participating banks, Deutsche Bank, HSBC, and Bank of Nova Scotia (together, the "Fixing Banks"), to suppress the price for physical silver and silver-denominated financial products.

In September 2016, the Court held that Plaintiffs had stated claims against HSBC and Bank of Nova Scotia. Plaintiffs settled with Deutsche Bank for $38 million dollars and what Plaintiffs hoped would be a treasure trove of preserved electronic chat messages among precious metals traders employed by Deutsche Bank and traders at Bank of America, Barclays, Standard Chartered, BNP Paribas, and UBS (the "Non-Fixing Banks"). The chat messages, many of which are quoted in the Third Amended Complaint (the "TAC") (Dkt. 258), appear to document sharing of proprietary information and episodic attempts to coordinate trading, apparently in the hopes of profiting from resulting movement in the prices of silver and silver-denominated financial instruments. After acquiring these chat messages, Plaintiffs amended their complaint to allege that the Non-Fixing Banks conspired with the Fixing Banks and among themselves to manipulate the Silver Fixing and the silver markets more generally.

But what Plaintiffs represented to be a mother lode of evidence of a vast conspiracy turns out to be less than overwhelming. The Non-Fixing Banks have moved to dismiss on the grounds that the chat messages do not connect them to a conspiracy with the Fixing Banks and do not document any actionable manipulation of the silver markets (among other things). For the reasons that follow, the Court agrees in part. Plaintiffs' allegations of an overarching conspiracy involving the Fixing Banks and Non-Fixing Banks are implausible. The chat messages provide a basis to infer the existence of a more limited conspiracy to episodically manipulate the silver markets, but Plaintiffs lack antitrust standing to bring a claim based on that theory. Plaintiffs also fail to allege market manipulation by any of the Non-Fixing Banks. Thus, the Non-Fixing Banks' motion to dismiss is GRANTED.

BACKGROUND

From 1897 to 2014, the price of silver bullion was set through the Silver Fixing. See In re London Silver Fixing, Ltd., Antitrust Litig. , 213 F.Supp.3d 530, 542 (S.D.N.Y. 2016) (" Silver I "). During the relevant period, 2007 to 2013, the Silver Fixing was conducted during a private conference call among the Fixing Banks at noon London time. Id. at 542, 544. The daily fixing operated through a "Walrasian" auction. Id. at 542. Each Fixing Bank would announce how much silver they wished to buy or sell at a given price—based on client orders and proprietary demand—and the price would be adjusted until an equilibrium of supply and demand was reached. Id. The market-clearing price, or the "Fix Price," was then published to the market. Id.

The Second Amended Class Action Complaint (the "SAC") (Dkt. 63) alleged that the Silver Fixing was a cover for a long-running conspiracy to suppress artificially the price of physical silver and silver-denominated financial instruments. 213 F.Supp.3d at 543–44. Relying on an econometric analysis of the spot market for physical silver and the market for Commodity Exchange, Inc. ("COMEX") silver futures, Plaintiffs alleged that silver prices "moved downward around the Silver Fixing much more frequently than [they] moved upward" and more frequently than would be expected in an efficient market. See id. at 544. Plaintiffs also alleged that the declines began shortly before the Silver Fixing call started. Id. On days when the Fix Price moved downward from the prevailing price before the call, there was, on average, a 15 basis point drop in COMEX silver futures and spot silver prices at the start of the Silver Fixing. Id.

Plaintiffs tied the Fixing Banks to this anomalous behavior by analyzing publicly-available trading data. According to Plaintiffs, on approximately 1900 days the Fixing Banks and defendant UBS quoted below-market prices for silver-denominated assets in the minutes leading up to and during the Silver Fixing. Id. at 545. Trading volume also increased significantly in the run up to the Silver Fixing. Id. For example, between 2007 and 2013, trading volume in COMEX silver futures began to increase just before the Silver Fixing and peaked during the Fixing call at more than three-times pre-Fixing volume. Id. During the same period, trades in COMEX silver futures successfully anticipated the direction of the Fix Price with 83.6% accuracy. Id. at 546 ; see also id. (describing in detail statistical analysis showing volume spikes prior to and during the Silver Fixing). According to Plaintiffs, these trends are circumstantial evidence of trading by the Fixing Banks to take advantage of their advance knowledge of the Fix Price. Id. at 545.

In Silver I, the Court denied the Fixing Banks' motion to dismiss and granted UBS's motion to dismiss. The Court concluded that the trading patterns identified by the Plaintiffs were evidence of parallel conduct consistent with a conspiracy. Id. at 559. Plaintiffs also alleged "plus factors"—facts that tend to show that parallel conduct was the result of an unlawful conspiracy rather than individual economically-rational decisions. Id. The structure of the Silver Fixing presented an opportunity for collusion: the trading volume spikes identified by Plaintiffs appeared to anticipate the Fix Price, whereas an efficient market would respond to the Fix Price after it was announced; and, given the strikingly consistent below-market prices quoted by the Defendants, it appears likely that on at least some occasions, individual Fixing Banks acted against their own self-interest. Id. at 561-62. The Court found that the same allegations stated a claim for manipulation under the Commodities Exchange Act (the "CEA"), 7 U.S.C. § 1 et seq. See id. at 565.

The Court also concluded that Plaintiffs had adequately alleged that they had "antitrust standing." Id. at 552. Plaintiffs allege that they were injured by the Fixing Banks' conspiracy because they sold silver-denominated assets at artificially low prices caused by the Fixing Banks' alleged manipulation of the Silver Fixing. Id. at 551. Although the Silver Fixing itself can be distinguished from the markets for physical silver and silver-denominated assets, the Silver Fixing and the silver markets are "inextricably intertwined." Moreover, the Court concluded that Plaintiffs were "efficient enforcers" because they sold silver investments on days the Fixing Banks allegedly manipulated the Silver Fixing. Id. at 555. Even if Plaintiffs did not deal directly with the Fixing Banks, the nature of the Defendants' alleged manipulation was market-wide and therefore had a sufficiently direct impact (at the motion to dismiss stage) on Plaintiffs' trades to provide standing. Id. By contrast, Plaintiffs made only limited allegations against UBS, which was not a part of the Silver Fixing and therefore did not have access to the same information. Id. at 575.

On June 8, 2017, the Court granted leave to amend and file the Third Amended Complaint. See Dkt. 253 ("Silver II "). The TAC alleges a much broader conspiracy to manipulate the markets for physical silver and silver-denominated assets. According to Plaintiffs, Defendants' "comprehensive strategy" has three elements.¹ The first element is the Silver Fixing scheme described above and addressed at length in Silver I . Relying on chat messages between traders at Deutsche Bank and the other defendants (the "Deutsche Bank Cooperation Materials"), the TAC also alleges a scheme to manipulate the "bid-ask" spread in the market for physical silver and a scheme to manipulate the silver markets through coordinated trading and information sharing.² The TAC also added as defendants a handful of banks that were not involved in the Silver Fixing: Barclays Bank PLC ("Barclays"), BNP Paribas Fortis S.A./N.V. ("BNP Paribas"), Standard Chartered Bank ("Standard Chartered"), and Bank of America Corporation and its subsidiary unit Merrill Lynch, Pierce, Fenner & Smith Inc. (together, "BAML") (collectively, the "New Defendants").

One of the means allegedly used by the Non-Fixing Banks to profit from their manipulation of the silver markets was manipulation of bid-ask spreads in the market for physical silver. Plaintiffs allege occasions on which traders at Deutsche Bank and UBS discussed how "wide" they would quote prices for 500,000 ounces of silver, settling on a spread of 10 cents. TAC ¶ 230; see also TAC ¶¶ 231 (comparing spreads for different quantities of silver), 240 ("if they call me in 1 lac [100,000 ounces of silver] I will quote 7-8 cents"). Traders at Barclays, BNP Paribas, HSBC, and BAML are alleged to have engaged in similar discussions with traders at Deutsche Bank. See TAC ¶¶ 232-43. For example, on July 4, 2008, in a conversation with a trader at Barclays, a London-based Deutsche Bank trader said, "just be wide." TAC ¶ 239; see also TAC ¶ 240 (UBS trader told trader at Deutsche Bank "just quote wider"). Many of the chats involve a single trader at Deutsche Bank, who communicated with individual traders at each of the Non-Fixing Banks and was aware that the information he shared was proprietary and could be used to gain an advantage over other market participants. See TAC ¶ 238 ("[UBS]: 10 cents is ridiculous." "...