Energy Trading Company Fined for Attempted Manipulation of Gas Futures
An energy trading company settled CFTC charges for attempted manipulation of the market for certain gasoline futures.
According to the Order, the firm attempted to manipulate the EBOB ("a type of refined gasoline used primarily in automobiles in Europe") gasoline market by selling physical EBOB gasoline at artificially low prices. The CFTC said that doing so was intended to benefit the firm's short positions in EBOB-linked futures contracts traded on NYMEX and ICE. The CFTC found that the firm's traders sold physical EBOB gasoline at prices that "were lower than what buyers indicated they were willing to pay," in order to depress the benchmark price for physical EBOB, and thereby, increase the value of their futures positions. The CFTC asserted that these actions were part of a broader strategy to boost trading profits in a market in which the firm was responsible for over 60 percent of the reported transactions published by a London-based price-reporting service.
The CFTC determined that the firm's actions violated CEA Section 6(c)(1) ("Prohibition regarding manipulation and false information") and CFTC Regulation 180.1(a)(1) ("Prohibition on the employment, or attempted employment, of manipulative and deceptive devices").
To settle the charges, the firm agreed to (i) cease and desist from violating CEA Section 6(c)(1) and CFTC Regulation 180.1(a)(1) and (ii) pay a $48 million civil monetary penalty. While the CFTC acknowledged the firm's partial cooperation during the investigation, such as facilitating witness interviews and producing documents, the penalty was not reduced as the firm failed to timely produce all requested communications.
In a dissenting statement, CFTC Commissioner Caroline D. Pham argued that the CFTC relied on "flimsy evidence that is speculative and circumstantial," and failed to consider "substantial evidence of market conditions and fundamentals driving supply and demand in European physical gasoline markets." She claimed that the "incomplete administrative record," including the omission of key documents, "undermines the Commission's ability to fairly adjudicate." She warned that the agency's approach "threatens the basic underpinnings of the global flow of commerce and trade," and could have negative consequences for commercial end-users engaged in hedging.