For Release: July 24, 2008
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today its case against Optiver Holding BV, two of its subsidiaries, and three employees, charging them with manipulation and attempted manipulation of New York Mercantile Exchange (NYMEX) Light Sweet Crude Oil, New York Harbor Heating Oil, and New York Harbor Gasoline futures contracts during March 2007.
The CFTC filed the civil enforcement action in the United States District Court for the Southern District of New York against Optiver Holding BV, a global proprietary trading fund headquartered in the Netherlands, and two subsidiaries – Optiver US, LLC (Optiver), a Chicago-based corporation, and Optiver VOF, a Dutch company. The complaint also names defendants Christopher Dowson (head trader of Optiver), Randal Meijer (head of trading and supervisor of Optiver and Optiver VOF) and Bastiaan van Kempen (Chief Executive Officer of Optiver).
The complaint charges all defendants with 19 separate instances of attempted manipulation involving the aforementioned energy futures contracts on 11 days in March 2007. The complaint further alleges that in at least five of those 19 attempts, defendants successfully manipulated certain of these energy futures contracts, causing artificial prices. In three of those instances, defendants forced futures prices lower, and in two instances, defendants forced futures prices higher. The complaint alleges that defendants profited by approximately $1 million from their manipulative scheme.
According to the complaint, the defendants employed a manipulative scheme commonly known as “banging” or “marking”’ the close. “Banging the close” refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading for the purpose of attempting to manipulate prices.
The complaint further charges Optiver and van Kempen with concealing the manipulative scheme and making false statements in response to an inquiry from NYMEX.
“These charges go to the heart of the CFTC’s core mission of detecting and rooting out illegal manipulation of the markets,” said CFTC Acting Chairman Walt Lukken. “The CFTC’s Enforcement Division aggressively pursues and punishes manipulative activity to bring offenders to justice and deter others from attempting to harm the markets. Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the Commission.”
“The men and women of the Division of Enforcement are working tirelessly to pursue every investigative lead involving potential wrongdoing in the commodities markets, including our nation’s vital energy markets,” said Acting Enforcement Director Stephen Jay Obie. “We use every resource available to uncover wrongdoing and to make sure that violators of the Commodity Exchange Act are tracked down and brought to justice.”
The Energy Futures Contracts Manipulated by Defendants
The defendants’ manipulative trading scheme involved three futures contracts listed for trading on the NYMEX: the Light Sweet Crude Oil futures contract (Crude Oil, also referred to as West Texas Intermediate (WTI)), the New York Harbor Heating Oil futures contract (Heating Oil), and the New York Harbor Reformulated Gasoline Blendstock futures contract (New York Harbor Gasoline). The settlement price for the Crude Oil, New York Gasoline, and Heating Oil futures contracts is derived by calculating the volume weighted average prices of futures trades conducted during the closing period for the contracts (from 2:28 to 2:30 p.m.). The volume weighted average price is referred to commonly as the VWAP.
The defendants’ manipulative scheme involved the Trading at Settlement (or TAS) contracts in Crude Oil, Heating Oil, and New York Harbor Gasoline contracts. TAS contracts are futures contracts, except that the parties determine at the initiation of the contract that the price of the TAS contract will be the day’s settlement price plus or minus an agreed differential. A TAS contract which has been bought or sold can be offset by trading a futures contract in the opposite direction.
The Manipulative Scheme
The manipulative scheme, in defendant Dowson’s words, to “bully the market,” involved trading a significant volume of futures contracts in Crude Oil, Heating Oil, and New York Harbor Gasoline in the opposite direction of the associated TAS position, before and during the close of the contracts. The defendants’ goal in trading the large volume of futures was to improperly influence and affect the price of futures contracts in Crude Oil, Heating Oil, and New York Harbor Gasoline. The defendants’ manipulative scheme was, in the words of defendant Meijer, “built on the idea that we can control the VWAP.”
As alleged in the complaint, the scheme ultimately permitted defendants to profit regardless of the direction of the market move, provided that Optiver’s futures trading in the close and before the close was in the opposite direction of the TAS position it had accumulated during the trading day.
For further detail on the allegations, please see the complaint and background documents found in Related Links.
The Commission wishes to thank the U.K. Financial Services Authority and the New York Mercantile Exchange for their assistance with this investigation.
The following CFTC Division of Enforcement staff members are responsible for this matter: Manal Sultan, David Acevedo, David MacGregor, Michael Berlowitz, David Oakland, R. Stephen Painter Jr., Eliud Ramirez, Derek Shakabpa, Judith Slowly, Lara Turcik, Lenel Hickson Jr. and Vincent McGonagle. Michael Penick and Andrei Kirilenko from the CFTC’s Office of Chief Economist are also responsible for this matter, as well Dr. Young Hwan Byeon, an Economist from the Korean Financial Supervisory Service..
Last Updated: September 15, 2008