CFTC Charges Optiver Holding BV with manipulation of Energy Market
7/24/2008 12:21 PM ET
Thursday morning, the U.S. Commodity Futures Trading Commission, or CFTC, charged Optiver Holding BV and two of its subsidiaries of manipulating energy futures contracts.
The CFTC revealed it had filed the civil enforcement action in the United States District Court for the Southern District of New York.
The complaint alleges that Optiver Holding BV, a global proprietary trading fund headquartered in the Netherlands, and two subsidiaries - Optiver US, LLC, a Chicago-based corporation, and Optiver VOF, a Dutch company stage-managed the energy futures contracts of New York Mercantile Exchange, or NYMEX Light Sweet Crude Oil, New York Harbor Heating Oil, and New York Harbor Gasoline during March 2007. Commenting on the case, CFTC Acting Chairman Walt Lukken said, "These charges go to the heart of the CFTC's core mission of detecting and rooting out illegal manipulation of the markets."
Optiver and its subsidiaries have been charged with 19 separate instances of attempted manipulation including 5 attempts where energy contracts were successfully manipulated leading to artificial price hikes and declines enabling the illegally profiteering approximately $1 million by the defendants. According to the complaint, the defendants employed a manipulative scheme commonly known as "banging" or "marking" the close. "Banging the close" refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading for the purpose of attempting to manipulate prices.
The complaint also names defendants Christopher Dowson, head trader of Optiver US, Randal Meijer, head of trading and supervisor of Optiver US and Optiver VOF and Bastiaan van Kempen, Chief Executive Officer of Optiver, US.
The CFTC has also charged Optiver and van Kempen with concealing the manipulative scheme and making false statements in response to an inquiry from NYMEX.
"Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the Commission," Lukken added. The scheme allegedly involved trading a significant volume of energy futures contracts in the opposite direction of the associated Trading at Settlement, or TAS position, before and during the close of the contracts, thus benefiting the company regardless of its TAS position accumulated during the trading day.
OIL, OIL PRICES, ENERGY, CRUDE, INVENTORIES, GASOLINE, ENERGY PRICES, EIA, OPEC, DEMAND, IRAN, HURRICANE, DOLLY By Reuters Reuters | 25 Jul 2008 | 09:40 AM ET
Oil dropped almost $3 a barrel to a fresh seven-week low on Friday, extending a decline that has knocked more than $20 off prices in two weeks.
Concern high prices and the slowing U.S. economy will undermine demand have helped oil fall from a record $147.27 on July 11. Technical trading and a short-covering bounce had buoyed prices earlier.
"Potentially, there are some people selling off after a weak bounce," said Harry Tchilinguirian, oil analyst at BNP Paribas.
U.S. crude traded as low as $122.50, the lowest since June 5. Brent crude was also down.
Some analysts said oil could be headed lower still.
Jim Ritterbusch, president of Ritterbusch & Associates, said crude could drop to as low as $117 within about a week, while Barclays Capital said it expected trading within a $115-$140 range during the quarter.
Even so, concern about oil supplies given a threat this week from rebels in Nigeria to attack oil installations and relatively strong economies in some regions was expected to give oil some support.
The International Monetary Fund earlier this month slightly revised up growth forecasts in 2008 for emerging and developing economies, home to most if not all of the current growth in world oil demand.
"Nothing in the fundamental drivers has changed -- supply constraints are still with us, and the latest IMF views confirm emerging market economic growth," Tchilinguirian said.
Even after the recent price fall, oil has risen by almost 30 percent in 2008 and is up from below $20 in early 2002 due to rising demand from fast-growing economies such as China.
Oil's rally, which the OPEC exporter group has blamed on factors beyond supply and demand, has led to pressure on politicians to take action to help consumers paying higher fuel prices.
The U.S. Senate will vote on Friday on a Democratic bill that seeks to curb excessive speculation in the energy markets, but Republicans said they had the votes to block its passage. Copyright 2008 Reuters. Click for restrictions.
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