7-24-08 by dugan
Hey, not my headline. It’s straight from the CNNMoney story
on the government’s accusations against an oil trading scheme meant to
"bully the market." The charge against Optiver Holdings isn’t a huge
one, except for the apparent proof that participants were able to move
the oil markets and profit from it. But combined with the suspicions
about market-moving in the collapse of SemGroup, the "it’s all supply and demand" argument is starting to leak.
There’s
a saying in the police world that the stupidest criminals get caught.
Given that one of the traders nabbed by the Commodities Futures Trading
Commission was caught on tape with that "bully the market" quote, they
may be the equivalent of the burglar who gets stuck in the
air-conditioning duct.
The CFTC press release,
states that the accused manipulation occurred in the regulated part of
the energy markets, on the New York Mercantile Exchange. We still don’t
have a clue about what’s going on in the unregulated over the counter
and electronic-trading markets, where up to 75% of energy trades occurs.
As Sen. Carl Levin said last year of the unregulated markets:
"It is as if a cop on the beat tells a liquor
store owner that he must obey the law and stop selling liquor to minors, yet the store
owner is allowed to move his store across the street and sell to whomever he wants
because the cop has no jurisdiction on the other side of the street and none of the same
laws apply."
The alleged Optiver scheme, involving a mass of trades late on one
trading day and early the next day, was apparently smelled first by
NYMEX itself. The defendants are accused of lying to NYMEX officials
when they asked questions. So the government’s own regulators got the
case handed to them on a platter. The trades also occurred back in
March of 2007.
Given that the understaffed, see-no-evil TrCFTC didn’t even stir off the
couch until various Congressional committees shoved it a few months
ago, and still clings to the position that wild energy markets are only
driven by supply and demand, this Superman-style quote from the press
release is a hoot:
“The men and women of the [CFTC’s] 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 need to regulate all energy markets, and regulate them more
strictly, could hardly be more obvious. And it’s not just crooks
causing the problem. It’s that a fourfold increase in legal market
speculation almost certainly has something to do with a fourfold
increase in the price of crude oil since 2004. Congress has several bills in the hopper
to oversee all markets and restrict some types of trades. A measure
intended to close the egregious "Enron Loophole" that created the
unregulated markets became law last month.
At least the Optiver case is a shot across the bow, and the threat
of new legislation is also in itself a warning. The recent drop in oil
prices may be in part the first result of getting a cop, even if it’s a
90-pound cop, on the beat.