It is one of the largest oil manipulation cases ever filed by the CFTC, it has been dragging on for years, and it looks like it may be entering a new phase: settlement. Optiver Holding BV, two of its subsidiaries and three of its employees were hit with oil manipulation charges by the CFTC back in 2008. The defendants allegedly manipulated the price of West Texas sweet light crude (WTI), heating oil, and gas on the New York Mercantile Exchange (“NYMEX”) in March 2007. The case began three years ago, but Reuters is reporting that the end may be in sight. Papers for a settlement have been filed with U.S. Magistrate Judge Theodore Katz.
According to the CFTC, Optiver, its subsidiaries and employees, were engaging in an illegal trading strategy known as “banging the close.” Traders would acquire large positions right before the market closed, driving up the price by sheer volume held. Then, right before the closing, they would take offsetting positions and reap the rewards. The CFTC alleged that the defendants tried this scheme 19 separate times, and successfully “bullied” prices on five of those occasions.
The CFTC’s case rested heavily on emails and taped phone calls in which traders offered each other advice on how to best “move,” “whack,” and “bully” oil prices. It also offered details on the “hammer” computer program that helped Optiver and its associates make lighting fast trades and carry out the alleged oil manipulation. In total, the CFTC claims the defendants made $1 million by “banging the close.”
Both the CFTC and Optiver declined to comment on this ongoing case. According to the original complaint, the CFTC was seeking a civil monetary penalty, restitution and disgorgement of ill-gotten gains, as well as trading and registration bans. No word on what will be a sticking point in settlement talks.
Cracking down on oil manipulation (and commodities speculation generally) has been a priority at the CFTC since the wild price fluctuations in 2008. Most recently, the CFTC filed suit against Arcadia Petroleum and its associates for driving up WTI prices in 2008. Though the outcome of the Optiver settlement will have some bearing on this next case, the suit against Arcadia is much larger ($50 million profits, rather than $1 million), and does not involve “banging the close.” Rather, the CFTC has accused Arcadia of exploiting slight shortages by taking huge physical positions, driving up the price of oil derivatives, which they held. Though Arcadia took substantial losses when they sold their physical position, they made millions off of the derivatives they held. Arcadia has argued that it never held enough of a position to significantly affect the market price, and has vowed to fight the charges.