The spectre of benchmark manipulation has resurfaced with a Swiss trading firm settling allegations that it sought to manipulate the market for certain energy futures to benefit its derivatives trading positions.
The U.S. Commodity Futures Trading Commission (CFTC) issued an order on Tuesday against the Geneva-based firm, TOTSA TotalEnergies Trading SA, which requires the firm to pay a US$48-million civil penalty and to cease and desist its violations of U.S. derivatives laws and regulations.
According to the CFTC’s order, the firm attempted to manipulate the market for futures contracts tied to a type of gasoline commonly used in Europe, known as EBOB.
Futures in EBOB are traded on certain regulated U.S. exchanges — including the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) — and the value of those futures is tied to the benchmark price for physical EBOB, which is based on brokered transactions in the commodity.
According to the CFTC, in March 2018, “TOTSA attempted to manipulate this market” by selling large volumes of physical EBOB at below-market prices.
At the time, the firm also maintained a large short position in the commodity’s futures that benefitted if the reported price of EBOB declined, the regulator alleged.
“Essentially, TOTSA’s traders were willing to accept less revenue from the company’s sales of physical EBOB, in an attempt to depress the reported price of EBOB, and increase TOTSA’s overall trading profits,” the CFTC alleged.
“Benchmark manipulation is an age-old scheme firms have attempted in many markets,” said Ian McGinley, director of enforcement with the CFTC, in a release issued Tuesday.
“The scheme in this matter involved an attack on the market integrity of CFTC-regulated futures contracts on gasoline, and this settlement demonstrates such attacks will not be tolerated in any market.”
The regulator said TOTSA “provided some co-operation” during the CFTC’s investigation, but it also didn’t preserve, or produce, certain chats on WhatsApp that were sought by investigators.
The firm settled the allegations, without admitting or denying any of the findings in the CFTC’s order.