An investor is suing some major banks for fixing the price of silver to their advantage. (Nicky Loh/Bloomberg)

The Bank of Nova Scotia, along with Deutsche Bank and HSBC, has been accused of fixing the price of trillions of dollars worth of silver.

In a court case filed in New York's southern district Monday, J. Scott Nicholson filed suit against the three banks for allegedly rigging the price of silver and in the process, making money at the expense of smaller investors.

Unlike stocks which are priced based on supply and demand in individual stock markets, for more than a century the price of silver has been set by major international financial institutions, including the defendants, who set the quoted price on a conference call every day.

"The nature of the [system] creates an environment that is highly susceptible to manipulation and collusion," the lawsuit alleges. "The call itself is completely secret. There are no outside observers, and no recordings … have ever been released. There is no regulatory body that oversees the auction process or verifies the data submitted by defendants."

The price that's set is the benchmark price against which traders all over the world can swap the metal based on local demand, in a global market worth some $5 trillion. The system was set up that way in 1897 so that traders could have an agreed-upon international price to set their own local prices.

But much like similar allegations in the gold market and in a key London-based interest rate known as LIBOR, critics of the system say it gives insiders too much power and ability to manipulate prices to their advantage.

"Defendants used this extreme level of secrecy to their advantage to manipulate the price of silver and the price of silver derivatives … to benefit their proprietary trading positions," the suit alleges.

Essentially, the lawsuit alleges the defendants buy and sell long and short positions in silver, armed with advanced knowledge of what the benchmark price that day is going to be.

The silver lawsuit seeks unspecified damages, but other lawsuits have already been brought forward against banks named in the silver lawsuit and others, over similar alleged fixing in the gold market.

In January, Deutsche Bank announced it would be withdrawing from its participation in setting the benchmark price in both gold and silver. And British regulators fined a Barclays trader in May almost $50 million for attempts to fix the gold price.

In response to a request for comment from CBC News, Scotiabank said "we intend to vigorously defend ourselves against this suit."