Is the Stock Market Rigged?
Deutsche Bank AG (USA) (NYSE:DB) has publicly accepted a charge of roughly €450 million this week, but for some reason, DB stock was relatively upbeat after the news broke. Regardless, it confirms suspicions that the stock market is rigged.
The fine was apparently for “equities fraud,” although Deutsche Bank refuses to say much else. All we know is that the firm set aside €20.0 million in 2014 for “external fraud,” but that number jumped to €450 million by 2015. (Source: “Deutsche Bank takes 450 million euro charge for equities fraud,” Reuters, May 23, 2016.)
“The increase in the event type ‘External Fraud’ is caused by a provision for equity trading fraud,” the bank said in a report published in March. (Source: Ibid.)
“Equity trading fraud”—those are not words you hear often from a bank spokesperson. It implies that Deutsche Bank was facing charges related to fraud with stocks and other assets that we normally consider beyond manipulation.
This scandal comes barely a month after Deutsche Bank admitted to tampering with the precious metals markets. It wasn’t the only bank either. Plenty of other firms confessed to the same charges, albeit under pressure from European Union (EU) authorities.
And to trace history back a little further, Deutsche Bank was one of the firms implicated in a sweeping interest rate scandal. The London Interbank Offered Rate, or LIBOR, is a benchmark rate used around the world. It underlies mortgages, car loans, and lines of credit. A microscopic shift in the LIBOR moves millions of dollars around the world.
As it turns out, the big banks knew about that and used it to their benefit. They took advantage of a system that depended on their integrity.
Every morning, 15 banks would submit estimates for the day’s interest rate. The five lowest and the five highest estimates were discarded, leaving only the middle five. Those estimates were then averaged into the daily LIBOR rate.
But traders would call each other up, offering dinners, cigars, and other gifts in exchange for getting the rate to where they needed it. This was standard practice at most major financial institutions, including Deutsche Bank.
The silver fixing was abused in similar fashion. But even knowing this, most traders would have assumed stocks were safe territory. There are significantly more safeguards against fraud in the equities markets.
That’s why it is so disturbing to see Deutsche Bank accept these charges. It eliminates one of the last places we trusted as a fair and open market.