25
Jul

They finally caught a price manipulator

Escrito el 25 Julio 2008 por Juan Toro en Financial Markets

The news caught the front page of the FT. A Dutch fund was charged of energy futures manipulation by the US regulator. Some traders at Optiver were supposedly manipulating settlement prices at NYMEX. The strategy they were supposedly implementing was simple: a long/short position of TAS (trading at settlement contracts) was taken and them the traders tried to push the prices at settlements on their favor. A TAS contract allows someone to buy/sell a given settlement price, betting it would close at a given discount/premium. Settlement prices at NYMEX are set as an average weighted price of the last two minutes of trading. If you push prices (up or down) in the two previous minutes before settlements you can effectively manipulate the settlement price. This is not the first case where there has been controversy on settlement prices and probes of manipulation. Just to cite a few examples, not long ago there was an investigation by CFTC on the cash cheddar markets at the CME and another similar example was the great Western case related with egg futures. Whether there was manipulation on the side of Optiver it is still under investigation, but what is hard to defend is that this potential manipulation was behind the recent high price spike in oil. The activities displayed by Optiver mostly took place in March 2007, almost a year and a half ago. Moreover the strategy they were implementing called sometimes for higher prices and other for lower prices (depending on their net position of TAS). Actually three of the five times they managed to manipulate the prices, they actually went down instead of up. Regulators should investigate any type of price manipulation, but it seems that this one is not responsible of the recent oil price spike.

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