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just $14M?
that's their champagne lunch budget for one week!
In another Wall Street misdeed, Morgan Stanley settles oil-trading flap
By Kevin G. Hall | McClatchy Newspapers
WASHINGTON — In another black eye for Wall Street, the Commodity Futures Trading Commission late Thursday announced a $14 million fine against Morgan Stanley Capital Group Inc. for allegedly hiding its complex oil trades.
The settlement, in which Morgan Stanley did not admit or deny the accusations, comes as oil prices have continued their steady upwards march and have some oil analysts again saying that excessive speculation is again pushing up energy prices. One recent estimate put the cost of that to consumers and businesses at $300 billion annually.
In an announcement after U.S. markets had closed, the CFTC said that a trader from Morgan Stanley conspired on Feb. 6, 2009, with a counterpart from Swiss financial firm UBS Securities to hide from authorities a prohibited trading activity.
The CFTC said Morgan Stanley was on the other end of a deal with a client of UBS. Morgan Stanley was looking to buy more than 33,000 March-dated contracts for future delivery of oil and sell the same quan ies of April contracts for oil. The two parties agreed to a deal in which they’d settle on a price after trading had finished for the day_ something called a Trade at Settlement agreement.
The problem, said regulators, is that Morgan Stanley asked its unidentified business partner, the UBS client, to not disclose the special trade until after oil trading had settled that day. The law requires immediate notification to the New York Mercantile Exchange, where oil is traded.
In similar past cases, these sorts of charges by the CFTC have involved a practice called “banging the close.” That involves traders dumping large volumes of contracts right before the close of trading in an attempt to manipulate the settlement price. When large numbers of contracts are trading hands, a slight change in prices can net millions of dollars in ill-gotten gains.
The CFTC declined to comment on whether Morgan Stanley and its counterpart were trying to manipulate the closing price, or why such a steep fine was issued for a single violation. UBS was hit with a fine of just $200,000. The agency declined to tell McClatchy whether the fine reflected a larger pattern of violation.
Although the $14 million settlement is small by the huge numbers now tossed around on Wall Street, the CFTC announcement adds to a public image problem for the nation’s biggest banks.
Morgan Stanley is active in the trading of contracts for the future delivery of oil, but it’s also very active on the unregulated “dark markets” where two private parties enter into huge bets on what happens to oil prices. And it’s also active in the physical market where oil actually changes hands.
Critics believe Wall Street speculation drives up oil prices by creating false impressions of tight supplies, and by using investor money, often from pension funds, to take buy-and-hold positions in oil contracts as if they were stocks to be held with the anticipation of price gains.
“We believe the current high oil prices are caused by speculation, not market fundamentals, as oil supply is more than adequate to satisfy current and future demand, which is expected to remain weak. However, we expect crude oil prices to remain inflated until regulators curb trading in oil futures by financial speculators, mainly the large investment banks and their hedge and pension fund clients,” Fadel Gheit, an oil analyst with Oppenheimer & Co. Inc. in New York, who thinks oil should be trading at $60 a barrel, not Thursday’s settle price of $85.17.
Gheit, whose estimate of the cost to consumers is $146 billion annually, said the profits from this speculation “helped fund obscene bonuses at large banks.”
In a poll released this week by the Reuters news agency, some of the biggest names in the oil sector said they think speculators are costing consumers upwards of $300 billion annually. Reuters said it surveyed more than 40 top figures in the oil sector and that 73 percent of them believed today’s oil prices do not reflect actually supply and demand fundamentals but speculation.
Legislation to revamp financial regulation is making its way through the Senate and by year’s end, the markets for complex and secretive trading of oil contracts and other financial instruments by Wall Street firms is expected to become more transparent.
Separate from that effort, the CFTC is also seeking to limit the total number of oil contracts that financial investors can hold.
http://www.mcclatchydc.com/2010/04/2...#ixzz0mYpfCDRa
just $14M?
that's their champagne lunch budget for one week!
That's for a single trade.
http://oilprice.com/Finance/investin...ipulation.htmlIt’s not so easy any more to manipulate energy trades. Ask JPMorgan Chase & Co. (JPM: NYSE), which last week became the first ever actively trading company to be sanctioned by the Federal Energy Regulatory Commission (FERC).
The Commission has revoked JPMorgan Ventures Energy Corp’s right to trade power for six months in 2013.
JPMorgan isn’t the only one to be targeted for energy trades manipulating this month: The Commission has also proposed fines for some of the world’s other largest banks, including Barclays Plc (BARC:LSS) and Deutsche Bank AG (DBK:ETR).
Since 2005, and as a direct result of the collapse of Enron Corp. in 2001, FERC has won more personnel and power and is increasingly demonstrating that it means business. They’re going after anyone involved in manipulative or fraudulent activities in the energy market.
What are the fines if you’re caught, for instance, tampering with electric-grid reliability? Up to $1 million a day.
But the collapse of Enron in 2001 was the decisive factor. Enron traders’ energy market manipulation led to rolling blackouts in California in 2000-2001. Enron traders essentially engaged in illegal practices intended to drive up prices that then led to blackouts. FERC says it’s not going to happen again.
The sanctions against JPMorgan derive from the company’s blatant lack of cooperation in a California energy trading manipulation investigation. The company is accused of deliberately producing incorrect do ents related to the investigation. JPMorgan insists it was an inadvertent mistake, according to Bloomberg.
In Huntington Beach, California, JPMorgan is using its controlling stake in electric generators to block changes to plants that must be implemented by the state in 2013.
FERC believes the bank was exploiting an unintended flaw in market rules to receive excessive payouts.
Barclays earlier this year had to pay out $453 million in a settlement with US and British regulators for manipulating the London interbank offered rate (Libor). Then in October, FERC proposed a $435 million fine on allegations that the bank manipulated energy prices in California and elsewhere in the west.
Deutsche Bank Energy Trading LLC is about to be slapped with $1.6 million for alleged energy trading misconduct in 2010.
Now, energy traders are taking things a step further, according to FERC, and playing one market off the other. This is apparently what Barclays is under scrutiny for. To wit, traders are purposely taking losses in physical energy markets in order to make money on financial exchanges.
It's nice to see someone penalized in spite of the asinine "It was a mistake!" excuse.
Why Do You Envy Them For Their Wealth?
-- WC
^ Sad but true. Also, you forgot to ask if I was authoritarian.
"Small" is an understatement.Although the $14 million settlement is small by the huge numbers now tossed around on Wall Street, the CFTC announcement adds to a public image problem for the nation’s biggest banks.
The fines need to be MUCH larger, if they are to have any effect probably by a factor of 100.
Reputational risks are not really factored into the thinking of the traders ing with the markets, and large companies know they can brush off a certain amount of corruption within their ranks, as people forget quickly.
I have little tolerance these days for "free market innovation" when it comes to financial markets. That seems to be thin intellectual cover for large banks and financial ins utions to get a free hand to really put the screws to the muppets that hand them their money.
I doubt the fines on BP and other huge corps like BigPharma, and TBTF are in any way dissuasive. Whne top execs are fired and jailed, then maybe, eg, BP will create a culture of employee and environmental protection prioritized above profit protection.
If the fine is $14M, and you make $200M on a $500M trade... that is not a deterrent, that is a minor expense item on the balance sheet.
Fines should be about 10 times the estimated profit made on the malfeasance.
BigPharma has been fined $10Bs over the past 30 years, and still they ship garbage like Avandia.
That is because they have made $1,000's of billions on their products in the same time frame.
as do BigOil and BigFinance. There's really no stopping any of them.
I wonder how the world even functioned properly prior to wall st.
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