Investigations underway
It was another notable disconnect. While OPEC officials talked about “speculators” in the oil market, administration officials, up to and including the President, said that price spike over the last year was “supply and demand.” Behind the scenes, however, the CFTC was actually conducting investigations of irregularities in oil trading as well as apparently of the ICE market, and other areas that were recommended in recent days. The WSJ has more on the Wild West show that is the commodities market, where insider trading is not illiegal, and where it thus would logically become an important element of traders’ strategies:
The CFTC’s announcement about its oil investigation suggested a single, broad probe that began in December 2007. But people familiar with its enforcement priorities say the agency is pursuing multiple oil investigations, and that many of them relate to one another. CFTC enforcement chief Gregory Mocek said the agency has about 60 manipulation investigations open in various commodity markets.
The CFTC has expanded an investigation, disclosed previously by The Wall Street Journal, into alleged short-term manipulation of crude-oil prices via a widely used price-reporting system run by Platts, a unit of McGraw-Hill Cos. One suspicion is that energy companies and traders have at times issued a flood of orders during a time window used by Platts to determine its reported prices for physical oil transactions, then used the potentially distorted prices to make profits in other markets. Platts has said its system has safeguards to protect against manipulation. Subpoenas on the matter have gone out in several stages, people familiar with the cases say. The agency has also been questioning traders about similar activity in the jet-fuel market, people familiar with the matter say.
Another area of concern for CFTC regulators is whether the owners of crude-oil storage tanks use their knowledge to make bets on oil-futures markets. In theory, the owner of a tank could issue misleading information about the tanks being full or empty, leaving the wrong impression about whether oil is in plentiful supply. Then they could make trades to profit on the misunderstanding. Unlike most stock markets, insider trading isn’t generally illegal in commodities trading. An oil company can take advantage of inside information about its production outlook when it makes trades…
The CFTC said it reached an agreement with IntercontintentalExchange Inc. and the Britain’s Financial Services Authority to require more information about the oil trading that takes place on the exchange’s ICE Futures Europe platform. While ICE oil futures are traded electronically on computer terminals across the U.S. and have prices tied to oil futures offered by rival New York Mercantile Exchange, owned by Nymex Holdings Inc., they haven’t been subject to the same CFTC reporting requirements as Nymex trading. ICE will now provide daily information on large trader positions in its oil-futures markets, divulge more details on market participants and notify the CFTC when traders exceed position limits.
The CFTC is now also investigating cotton trading, which had a big spike in March and then a big drop — that commodity’s trading took place on ICE as well.