The suspicious trading behaviour which led to an FSA investigation Link to this video
Half an hour till the closing bell, the market's in freefall. Final
session of the year, even though it's only the end of September. Happy
New Gas Year: in the energy trading world, today's a seismic event. End
of the month, end of the quarter, end of the season, and – deck the
halls – end of the gas year too. No wonder traders are nervous.
Day-ahead price is getting a kicking. It was only down 0.25 when I sent
out my market update at 15.50; now it's down a full penny more heading
into the final few minutes of dealing.
I open up the Greenwich
Mean Time webpage, leave the yellow bar counting down the seconds on my
right-hand screen as I cut up the call slips and walk round the room.
Drop the E.ON one on my desk, hope Dan picks up when I dial, could do
with a solid run-through of prices all the way out on the curve.
James
can have Statoil, he's quickest on the draw and they fire out their
numbers like a Browning 50-caliber machine gun. Barely look at the
others as I slap the slips down while I zigzag round the office: BG
here, Gazprom there, Merrill Lynch for her, EDF for him, quick check of
the oil price on Reuters then back into the hot seat. Actually, what the
fuck? Jump out my chair and back to the Reuters terminal – that Brent
crude chart looks properly dodgy, flick up the oil newsbar but the
cupboard is bare: no reason the price should've just tanked like that
from 16.00 onwards. No straight reason, at any rate.
The pricing
window opens at 16.00 on the nose, stays open till 16.30, and what do
you know? Front-month contract's been ticking up nicely all day, no real
news, no US employment data or supply-side shocks, just a quiet one
heading into the weekend, then – bang – 16.00 arrives and the front
month falls through the floor. Nosedives like it's taken a direct hit in
the fuselage, no support, no dead cat bounce, not a friend in sight as
it plummets ever downwards. Pound to a penny that'll recover as soon as
the window shuts, but can't sit around watching it till then, our window
opens in less a minute, I've only got eyes for the gas price.
16.29.10
says my faithful yellow bar, I crack my knuckles and scan the lefthand
monitor. System's slightly short, having been long a few hours ago.
On
a normal day that would have given the prompt [near term contracts to
deliver gas within the same month] a bit of a boost going into the
close, but today's not one of those. 16.29.17; quick glance at the
National Grid entry zone graphs: Langeled – the main pipeline delivering
gas from Norway – is still pouring gas in, only a touch down from the
overnight rate.
LNG send-out (gas being pumped into the system
from liquefied natural gas terminals) is pathetic by comparison, but
there's a bit of supply tightness there and that's already been factored
into the prompt and near curve [medium term contracts]
Alarm bells
16.29.29.
Sophie sends a text, timing couldn't be worse, I'll call back soon as
the first round of prices are in. Can't remember what time dinner is, no
time to think about that now, it's almost witching hour.
16.29.36,
cough once for luck, then suck in a lung-full of air. 16.29.39, I hate
this bit, wish we just had a gong: "MAKE YOUR DAY-AHEAD AND WEEKEND
CALLS", mouth shouting on autocue, fingers doing the same on the phone.
My timing's exquisite: 16.29.58 as the first ring peals out on the E.ON
trading desk somewhere in Germany.
No time for pleasantries, not
for me or for him. "Day-ahead 58.5, no, hold on … it's just collapsed as
we speak … 58 printing now."
Alarm bells ringing, even louder
than the oil ones a few minutes ago. That's a major move, sliding half a
penny with nothing in between sounds pretty suspect, but no time to
dwell on it, he's already spitting out the rest of the curve. "Weekend
59.25-35, nothing working days, October 59-59.1, November 61.95" …
I
let my subconscious do the writing, my mind's back on Day-ahead. When
he gets to summer '14 I say "thanks" and let him go, don't really need
any more comment than the "hold on … it's collapsed" bit; day-ahead is
what's of most interest today, the rest's pretty bland given the
market's so thin. No one wants to take proper positions ahead of next
week, when winter replaces summer and a new gas year begins.
No
numbers from Errol, but Sandro's screenshot is in, I jot down the
prices, they're a pretty much perfect match with Dan's. Day-ahead aside,
of course, that one's all over the place. Sandro's got 58.40 bid, 58.75
offered, last print [trade] at 58.00, something's totally off there.
Two
minutes till the ICAP call, check Reuters again: wish I was an oil
trader, saw that one coming a mile off, 16.30's been and gone and
Brent's on the bounce again – soon as the price setting window shut, it
reversed the losses and insouciantly ticked up again like nothing had
ever happened.
Back at my desk I instant message my friend Kenny, a
former price reporter. "This market is so bent," I type. "Fridays can
throw up the occasional storm," comes his reply. "Probably believe it's
easier to manipulate on a Friday … which is true."
16.35.00: Dial
up ICAP (a brokerage which facilitates deals between energy companies), a
barrow-boy baritone blasts down the line. "'Allo mate, wanna
run-through, do ya"? I murmur my assent, but he's already rattling off
the prices without skipping a beat. "Day-ahead 58s, weekend 59.35,
working ays …" I don't normally interrupt them, but this time I'm
intrigued. "Hold on, sorry, that day-ahead, was that firm?" He sounds
like he was expecting the query: "Yeah, that's where we had to close it
at, unfortunately …"
Not sure where unfortunately comes into it,
or why he'd say that to me, but I keep schtum and let him go on. "It was
offered at 58 at the time [16.30], then 0.02 seconds after was paid
there," he explains. I thank him, then he moves onto the front month –
"59s, all right dude? Have a good 'un" – and he's gone. I get back to
Kenny on Yahoo and tell him what I've just heard. Kenny's reply:
"Classic".
Fix in the air
Spot on. I bet
they're taking the piss, odds on they have something to do with that
last second collapse. Trouble is, I can't ask them. Can't ask anyone
anything, to be honest – half the traders only speak to us off the
record, and the other half aren't authorised by their compliance
departments to do anything other than read out the numbers like
the talking clock, then hang up.
All my attention still on
Day-ahead, I go downstairs for a quick smoke before the trades sheet
arrives. Bet the price recovered straight after 16.30, just like oil
did, and just like you'd expect if there was a fix in the air. My
instinct says there's no way that was a fair quote at 58, the price
never gives up half a penny in a flash like that without something being
amiss.
Back upstairs, ten to five. ICAP's closing run email sets
the price at 58.5 – that means the price did recover straight away as
predicted.
17.06, trades come in, I open the spreadsheet and hone
straight in on Day-ahead. Exhibit B: only six trades at 58, everything
else screaming out that the price should be more like 58.5. Heart says
ignore the suspicious ones, head says call in the bosses. Let them take
the rap: that's what they're paid for. I tap Neil on the shoulder, tell
him what I know, show him the figures, and let him take charge.
After
a good deal of deliberation, he takes the easy way out. Plucks the
midpoint of the dodgy block of deals at 58 and the more rational set at
58.5, sets the price at 58.25 and we all head for the door. Could have
been worse I suppose; we haven't given the bad guys exactly what they
wanted.
But it feels a lot like we let them move the price on this
key day by a quarter of a penny. And chances are that somewhere someone
is grinning at having made a killing by putting one over on those mug
price reporters.
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