- The issue of e-discovery and market manipulation in the oil sector has been thrown into sharp focus by a CFTC lawsuit.
- US Commodity Futures Trading Commission, CFTC, charged 3 employees from Optiver Holding BV and two of its subsidiaries. All parties are accused of having manipulated the settlement price at the end of the trading day on Nymex.
What is the issue
The US Commodity Futures Trading Commission (CFTC) alleged that Optiver Holding BV, 2 of subsidiaries and 3 high-ranking employees had manipulated prices of crude oil, heating oil and gasonline future contracts on the New Zork Mercantile Exchange at least 5 times during 2007-03.
What are the charges?
The CFTC claims the defendants engaged in market manipulation. Gerben Goojiers, a trader at Optiver, had a conversation on 2007-03-05 with a colleague:
- “I’ll look into improving the hammer tool tomorrow, so that we can do this with a fin3er frequency so that should give us a better chance of being up front again”
What is the hammer: a trading strategy used to influence the settlement price at the end of the trading day on Nymex. This involves taking big positions just before close to manipulate prices. Optiver allegedly attempted a similar scheme at least once in ICE Futures Europe, the London-based energy exchange. However, it seems as if it was unable to influence the sttlement price on ICE Futures Europe.
- CFTC Matter 25 July 2008 We have learned recently that the United States Commodity Futures Trading Commission filed a civil lawsuit against Optiver. We have received a copy of the complaint and are reviewing it.Optiver takes the Commission’s action very seriously, and is treating it with utmost attention and care.We take tremendous pride in our longstanding reputation for integrity.We believe that we have run our business by doing not only what is best for the bottom line, but what is right, and we will continue to do so.Obviously, we cannot comment further nor answer any news media questions concerning the complaint until we and our legal counsel, Schiff Hardin, have had the opportunity to review the charges fully.
How is the CFTC trying to make its case?
The CFTC is laying out its case with several telephone recordings as well as e-mails. In these, 2 of the defendants had discussed the ‘fairy story’ they would give regulators in case Optiver was investigated for manipulation.
Traders allegedly said that they were intending to trade a volume sufficient to manipulate prices… while refraining to do it that massively that CNBC or CNN would report it.
What it means for you and Infosec?
Under the influence of the Internet, you cannot say anything to anyone that won’t be heard by the regulator eventaully. In turn, this could get you into trouble down the line.
According to the CFTC claim, Mr Stepanek wrote in an e-mail:
- “Have you thought about just doing the crude massively big? I think with 6,000 or so you can even move that one, like we-re doing with the minute marker. Obviously the gasonline is just a great product for it. Could this be considered market manipulation? As long as we don’t trade against ourselves, everything seems above board, but I still think the exhcange might start to look into it.”
So your staff should be aware that any phone call or e-mail correspondence could ultimately be used by a regulator to enforce rules that might have been broken.
The CFTC acknowledges assistance in this investigation from the UK’s Financial Services Authority and the New York Mercantile Exchange.