On May 24, 2022, the Commodity Futures Trading Commission (CFTC) setted charges against a global energy and commodities trading firm for manipulative and deceptive conduct. The conduct in question spanned 11 years from 2007 to 2018 and involved manipulation and foreign corruption in the U.S. and global oil markets, including manipulation or attempted manipulation of four U.S. based S&P Global Platts physical oil benchmarks and related futures and swaps. The matter resulted in a $1.2 billion fine for the firm representing the highest civil monetary penalty ever levied by the CFTC ($866 million) and the highest disgorgement amount ($321 million).
The firm sought to increase profits from its physical and derivatives oil products trading by manipulating or attempting to manipulate U.S. price-assessment benchmarks relating to physical fuel oil products, and related futures and swaps, in order to benefit the firm’s trading positions. Platts is a London-based price reporting agency that provides benchmark prices for a variety of energy-related products and markets throughout the world, including oil products. Platts generally determined the benchmarks for a given day based primarily on bids to purchase, offers to sell, and trades in the relevant product during a defined period of time called the “window” that Platts-authorized market participants reported to Platts, and which Platts then widely reported to subscribers.
On hundreds of occasions, the firm manipulated or attempted to manipulate several Platts benchmarks, and thereby the derivatives such as swaps and futures that settled to the benchmarks, in order to increase the firm’s profits (or reduce losses) from its derivatives and physical trades that are priced by reference to the benchmark. As an example of the manipulative scheme, in or around May 2013, the firm entered into a trade for the sale of approximately 40,000 metric tons of fuel oil, priced by reference to the average Platts Los Angeles Bunker Benchmark on May 28, 29, and 30, 2013. A firm trader submitted bids to Platts during the window and would routinely increase the prices of those bids. The firm employee did so approximately 27 times on May 28, 23 times on May 29, and 9 times on May 30, 2013. This trading activity led to an artificial Los Angeles Bunker Benchmark on each day that was significantly higher than the day’s starting price, to the benefit of the firm’s positions.
The full CFTC order in this matter can be found here.
VIP: While extensive and broad, at the heart of the firm’s manipulative activity was trading that could be referred to as traditional ramping behavior, or artificially impacting the price of a security/instrument to benefit an existing large position in the same security/instrument. Validus maintains several surveillance procedures to identify the trading behavior at the heart of the manipulative trading scheme in this matter. These include momentum ignition, flashing, market dominance at open/close etc. and can be configured based upon asset class and tailored to identify anomalous activity. Later this year we will extend this activity to go across related products to capture macro trading activity during these marker and price sensitive periods. The Eventus Regulatory Affairs is available to assist with the identification of appropriate procedures to address the risks of your business as well as provide guidance as to the parameters based upon a particular asset class.
Eventus is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.