The US Commodity Futures Trading Commission (CFTC) continues to closely monitor markets for benchmark-related manipulations, most recently levying a $48 million fine on TOTSA, a subsidiary of Total Energies.
The CFTC’s order said that TOTSA had attempted to manipulate the market for EBOB-linked futures contracts.[1] Eurobob (EBOB) is a type of refined gasoline used primarily in cars in Europe and futures contracts are linked to its trade on CFTC-regulated exchanges. They are financially settled based on the Argus EBOB Benchmark price.
In March 2018, TOTSA sold more physical EBOB than it had sold in any other previous month with its sales constituting more than 60% of the volume transacted by all brokered market participants. At the same time, TOTSA maintained a large short position in March-settled EBOB-linked futures which would increase in value if the reported price of EBOB declined. CFTC alleges that TOTSA was selling EBOB at a reduced price to try to benefit its short position.
Director of Enforcement Ian McGinley said; “Benchmark manipulation is an age-old scheme firms have attempted in many markets. In numerous cases over the past 20 years, the CFTC has guarded market integrity by detecting and prosecuting these benchmark-related schemes. 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.”[2] CFTC enforcement ramps up
The recent fine adds to a number of actions against companies for what the regulator terms oil and gas market malpractice.[3] Earlier in the summer, commodity trading house Vitol agreed to pay $500,000 to settle charges with the CFTC and a U.S.-based unit of commodity trading house Trafigura agreed to pay a $55-million settlement to the CFTC.
Vitol was answering charges of exceeding position limits for certain exchange-traded oil and cattle contracts during 2022. The half-million-dollar fine adds to two earlier incidents for Vitol. In 2020, the company agreed to pay $95.7 million to settle corruption-based fraud and attempted market manipulation charges, related to bribes and kickback payments to employees and agents of state-owned entities in Brazil, Ecuador, and Mexico for "preferential treatment and access to trades". In 2010, Vitol paid $6 million to settle charges that it failed to disclose material facts to the New York Mercantile Exchange over the close relationship between Vitol's Houston unit and Vitol Capital Management Ltd, both affiliates of Vitol Group.
Similarly, the Trafigura unit’s $55-million settlement was for charges of fraud, manipulation and impeding whistleblower communications. From 2014 to 2019, the firm had traded gasoline with material non-public information, manipulated an oil pricing benchmark, and required current and former employees to sign agreements barring them from sharing company information.
Prior to this year, companies including Glencore, Equinor, Arcadia, BP, Morgan Stanley, Enron, Freepoint Commodities, Marathon Petroleum and Panther Energy Trading have all been sanctioned for activities that attempted to manipulate the markets. Dissenting opinions
While the CTFC is focused on clamping down on market manipulation, its decisions have not been unanimous. Commissioner Caroline D. Pham said in her dissenting opinion on the fine for TOTSA that the regulator was engaging in “anti-energy policies”:
“This case is a textbook example of policymakers with no industry experience second-guessing commercial business decisions in a bubble,” she wrote.[4]
“I am seriously concerned about the lack of direct evidence in the CFTC’s case, and the reliance on speculative, circumstantial evidence to support the alleged charges of attempted manipulation without refuting the evidence that supports the defense. Importantly, from a policy perspective, I am seriously concerned about the impact that this speaking order will have on restricting the ability of commercial end-users to use derivatives markets for legitimate commercial hedging activity to manage their risks in a volatile geopolitical landscape and volatile energy markets.”
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