Sources at odds on impact of US CFTC's NYMEX manipulation settlement
Washington (Platts)--20Apr2012/426 pm EDT/2026 GMT
The US Commodity Futures Trading Commission's $14 million settlement
over a NYMEX energy manipulation scheme is either the precursor to a wave of
anti-manipulation cases in crude oil and other markets, or a one-off
coincidence that largely will be ignored throughout the market, sources said
"I think it's a sign that the CFTC is going to be much more interested
in pursuing market manipulation cases," said Shaun Ledgerwood, a senior
consultant at The Brattle Group and a former economist with the Federal
Energy Regulatory Commission's office of enforcement who assisted in
proceedings against Amaranth Advisors and Energy Transfer Partners.
"The only constraint they have is their resources, if their budget gets
expanded their enforcement and market oversight efforts will expand right
along with it."
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CFTC Commissioner Bart Chilton, who pushed for the expanded anti-fraud
and manipulation powers his agency received in the Dodd-Frank Wall Street
Reform and Consumer Protection Act, said the settlement "sends a message to
potential manipulators: mess with markets and regulators will be on your
trail and keep coming after you."
"Anytime we get this amount of money, it is a significant win for
consumers," Chilton said Friday.
But one oil trader said the settlement was "a lot to do about nothing."
"Almost no one had even heard of Optiver and probably no one cares who
they are or what they got fined," the trader said. "It there is a sign, it
would be don't do stupid things like trying to trade large volume on [trade
at settlement] then work futures against it to try to beat it."
Late Thursday, the CFTC announced the $14 million settlement with
Optiver over oil and gasoline futures manipulation in March 2007. The CFTC
said that traders in Optiver's Chicago office engaged in a trading scheme
where they accumulated large positions in Trading at Settlement contracts in
NYMEX light sweet crude, heating oil or gasoline contracts and then offset
those positions by trading futures contracts shortly before and during the
closing period for those contracts, a scheme known as "banging" or "marking"
the close, according to the CFTC.
Ledgerwood said that while the "public clamor" over potential
manipulation and excessive speculation in crude oil markets has become "the
flavor of the day," the CFTC, along with FERC, were already in the midst of
expanding their efforts to root out manipulation in all energy markets.
"I think if it involves futures, if it involves derivatives they're
going to be interested," Ledgerwood said.
The CFTC's complaint said Optiver traders used its manipulative scheme
at least 19 times in March 2007 and successful caused artificial prices at
least five times.
"The CFTC will not tolerate traders who try to gain an unlawful
advantage by using sophisticated means to drive oil and gas futures prices in
their favor," said David Meister, the director of the CFTC's division of
enforcement. "Manipulative schemes like 'banging the close' harm market
integrity, and false and misleading statements to exchange officials to cover
tracks obstruct the investigative process."
According to the CFTC, Optiver and Bastiaan van Kempen, who was
Optiver's CEO in 2007, made "false statements" to NYMEX compliance officials
when the exchange launched an inquiry into the trading scheme.
Damon Leavell, a spokesman for NYMEX parent CME Group, declined to
The settlement requires the Netherlands-based company to pay a $13
million civil penalty and disgorge $1 million in profits the CFTC claims were
made under the trading scheme.
The settlement prohibits van Kempen from trading commodities for two
years, Randal Meijer, who was then Optiver's head of trading, for four years
and Christopher Dowson, Optiver's head trader, for eight years. Dowson is the
only defendant that Optiver still employs, according to the CFTC.
The CFTC's announcement came just two days after President Obama
announced a five-part plan aimed at stamping out manipulation in crude oil
markets that would give the CFTC new powers to raise margin requirements and
boost penalties for manipulating energy markets.
While market sources differed on the meaningfulness of the settlement,
one analyst, Matt Smith of Summit Energy, said its timing was "interesting"
since it came just two days after Obama's speech.
The CFTC, Smith said, was trying to send a message to the industry with
the Optiver settlement, by piggy-backing on the Obama speech and "shooting
across a barrel to highlight that they are being more vigilant about this."
A CFTC official, who spoke on the condition of anonymity, said Friday
that the timing of the Optiver settlement was a coincidence. The Optiver
settlement order was signed by US District Court for the Southern District of
New York Chief Judge Loretta Preska on Thursday, but the CFTC and defendants
in the case agreed to the settlement in March, according to the order.
The CFTC official said it was unclear if the Optiver announcement
represented a more aggressive agency push to pursue more manipulation cases.
In fact, when the CFTC announced the Optiver charges in July 2008, Walt
Lukken, then the CFTC's acting chairman, said the charges "go to the heart of
the CFTC's core mission of detecting and rooting out illegal manipulation of
the markets." Lukken is now president and CEO of the Futures Industry
--Brian Scheid, email@example.com
--Alison Ciaccio, firstname.lastname@example.org