FACTBOX-Commodity market squeezes of the past decade
Sept 25 (Reuters) - U.S. regulators on Wednesday closed a five-year investigation into alleged manipulation of the silver market, saying 7,000 staff hours of investigation produced no evidence of wrongdoing.
The decision by the Commodity Futures Trading Commission was a defeat for silver commentators and investors who urged the probe, saying big banks including JPMorgan Chase & Co were selling the metal short using futures and options to hold prices down.
Big traders had dismissed the investigation as a waste of time and the charges as a conspiracy theory.
Some of the examples below were not necessarily illegal based on existing regulations:
TRADER: Arcadia, with assistance
MARKET: Dated Brent
STRATEGY: Tosco claimed in a lawsuit, later settled out of court, that Arcadia gained a monopoly position in late August and early September after obtaining control of more '15-Day' Brent contracts than it knew could be delivered. Glencore, who was named as a co-conspirator, also bought a number of Brent cargoes to satisfy a tender to supply refiners in India.
PRICES: Traders calculated that the value of Europe's benchmark Dated Brent crude jumped by more than $3 from Aug. 21 to Sept. 5 as cargoes were bought.
FALLOUT: U.S. oil refiner Tosco filed a lawsuit against Arcadia for inflating the price of crude. Tosco claimed Arcadia, then a wholly owned subsidiary of Japan's Mitsui, was aided by Swiss-based trader Glencore and other unidentified conspirators to raise the price of Brent crude. The lawsuit was settled out of court. At the time, China's biggest crude oil importer Unipec suspended trade with Arcadia and Glencore.
MARKET: Dated Brent
PERIOD: Q1 2002
STRATEGY: U.S. energy trader Sempra snapped up almost an entire month's Brent crude oil program after carrying out a huge exchange-for-physical (EFP) trade, under which it swapped Brent futures for forward contracts that delivered oil. Most of the crude was shipped to China.
PRICES: Dated Brent spreads and premiums strengthened during the month.
FALLOUT: Sempra's was one of the last classic short squeezes in the North Sea Brent market before pricing agency Platts introduced additional types of crude into its benchmark methodology, making it all but impossible for a single trader to buy an entire month's worth of crude.
PERIOD: Early 2004
STRATEGY: BP was alleged to have bought nearly all the propane in the Mont Belvieu storage fields in advance, then held onto it until the end of the month, when other companies who needed the gas on a northern pipeline would pay up for it.
PRICES: This is unclear, but some media reported that BP had ultimately lost money on the gambit.
FALLOUT: In 2007 BP agreed to pay $303 million in civil and criminal penalties for attempting to corner the U.S. propane market, the biggest CFTC fine in history. In return, the government agreed to end criminal probes related to propane, gasoline, crude and other commodity trade. BP also agreed to pay $52 million to settle a class action lawsuit brought by customers who said they paid inflated prices in April 2003 and the first half of 2004.
A separate criminal case against four BP traders, who had pleaded not guilty to mail fraud and conspiracy, was dismissed in 2009 because the trades had occurred on the over-the-counter market, not on a regulated exchange.
TRADER: Brian Hunter for Amaranth Advisors LLC
MARKET: U.S. Natural Gas
PERIOD: Aug-Sept. 2006
STRATEGY: Hunter bet on the March/April spread; that April prices would drop relative to March before storage had the chance to refill to meet summer cooling demand. He had made that bet in 2005 and won big because Hurricane Katrina had knocked some Gulf of Mexico supplies offline and the price of gas rose as high as $15.78 in December, the highest ever, as the market feared a supply shortage. The fund had natural gas futures positions valued at more than $5 billion in December 2005. By the time September 2006 rolled around, with no hurricanes, storage was at a healthy level and the spread began to move against him.
PRICES: Between Aug. 25, 2006 and Sept. 27, 2006, natural gas futures lost 41 percent of their value as Hunter unwound his positions.
FALLOUT: By the end of September 2006, the losses from the bad trades were estimated at $6.4 billion and the fund went out of business. The CFTC charged Amaranth with attempted market manipulation and focused on Hunter's ability to amass thousands of positions both on the NYMEX and in the electronic over-the-counter market on the InterContinental Exchange.
In 2009, Amaranth was ordered to pay a $7.5 million fine to the CFTC for attempted manipulation of natural gas prices. As a result of the incident, ICE in 2007 began reporting in more detail its weekly positions to the CFTC.
By January 2010, the CFTC began including some of the ICE data in its weekly Commitment of Traders reports. In April 2011 the U.S. Federal Energy Regulatory Commission ordered Hunter to pay a $30 million fine for manipulating energy markets prices.
TRADER: JPMORGAN, HSBC
MARKET: U.S. SILVER FUTURES, OPTIONS
PERIOD: Between first half of 2008 and third quarter 2010
STRATEGY: Investors claimed in two lawsuits that the banks, among the world's largest bullion traders, had manipulated the COMEX silver futures and options markets from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall. The lawsuit against HSBC was subsequently dropped.
PRICES: The price of spot silver had increased more than 25 percent from the start of Q2 2008 to the end of Q3 2010. The plaintiffs of the lawsuits said silver prices would have risen even more without manipulation.
FALLOUT: The CFTC formally confirmed its probe in September 2008. Almost 50 investors filed lawsuits against JPMorgan Chase & Co and HSBC alleging the banks squeezed or manipulated commodity markets. HSBC was dropped from the case which was dismissed by a New York court in March 2013.
The judge said that while the investors showed that JPMorgan had the ability to influence prices, a fact the bank did not dispute, they failed to show that the bank "intended to cause artificial prices to exist" and acted accordingly.
TRADER: Anthony Ward, trading firm Armajaro
MARKET: London cocoa
PERIOD: July 2010
STRATEGY: Armajaro was widely reported by industry traders to have accumulated a large position in the front-month Liffe futures contract in the first half of 2010, ultimately taking delivery of 240,100 tonnes at expiry, the largest such delivery in nearly 14 years; that represented almost all the physical stocks registered with the Liffe exchange at the time. Top chocolate maker Barry Callebaut was reported to be the recipient of 100,000 tonnes of the cocoa.
PRICES: Liffe's July futures contract expired with a premium near 300 pounds a tonne over September cocoa as those short of the market and unable to deliver were caught out. The prompt spread later collapsed.
FALLOUT: A group of 16 European cocoa industry participants sent a letter to Liffe on July 2 complaining of speculation in the London market. Liffe introduced a new trader reporting system similar to the CFTC that provided more transparency about who is holding positions in the soft commodity markets.
TRADER: JPMorgan Chase & Co
PERIOD: September 2010 to November 2012
STRATEGY: The Federal Energy Regulatory Commission said JPMorgan Ventures Energy Corp, the unit that became one of the biggest U.S. electricity traders with the 2008 acquisition of Bear Stearns, used "manipulative bidding strategies" in California and the Midwest to churn up $2 billion in profits from potentially loss-making power plants.
Regulators said the company created "artificial conditions" by manipulating power grid operators into paying the bank to run the plants at low levels and getting "premium rates."
PRICES: Midwest and California power market
FALLOUT: In July 2013, the JPMorgan subsidiary agreed to pay a $410 million penalty to settle the FERC case, the second-largest penalty in the regulator's history. JPMorgan neither admitted nor denied violations.
The U.S. Federal Bureau of Investigation is conducting a criminal investigation into whether several employees tried to impede the FERC investigation.
TRADER: Barclays Capital
STRATEGY: FERC has said the British bank deliberately lost money in physical power markets to benefit its financial positions between 2006 and 2008, and that the Barclays traders knew their activity was unlawful.
PRICES: Midwest and California power market
FALLOUT: FERC fined the British bank and four of its power traders a record $453 million, in its most ambitious market manipulation case to date. In July, the bank said it would contest the penalty.
TRADER: Joe Nicosia, Louis Dreyfus and its U.S. cotton merchant Allenberg Cotton and Term Commodities
MARKET: New York Cotton
PERIOD: May-July 2011
STRATEGY: A July 2012 lawsuit said the company cornered the cotton market in 2011 when it took delivery of most cotton futures contracts on the ICE Futures U.S. exchange on expiration. Louis Dreyfus has denied the allegations.
PRICES: Futures prices in March 2011 reached their highest since the U.S. Civil War in the 1860s and more than halved by July. Physical cotton was trading at lower prices on the spot market, but Dreyfus declined to buy it, the suit alleges.
FALLOUT: Ex-Glencore cotton trader, Mark Allen, and other traders filed a class-action lawsuit alleging that Louis Dreyfus violated antitrust law by artificially inflating futures prices.
The CFTC opened a probe into the trading, its second in three years. The CFTC investigated a surge in cotton prices prior to the 2008 financial crisis, but found no evidence of manipulation.
TRADER: Goldman Sachs, Metro Trade Services International, Glencore Xstrata, JPMorgan Chase & Co, London Metal Exchange
MARKET: LME aluminum
PERIOD: Feb. 1, 2010 onwards
PRICES: Premiums for aluminum, the price paid on top of the LME benchmark for physical delivery of metal, have set records every year since 2010. They were as high as 12 cents per lb in the United States, or $265 per tonnes, in early 2013, more than double 2010 levels.
STRATEGY: The banks and traders hoarded metal in warehouses, restraining supplies and driving up the prices of industrial products, including the Platts MW Midwest premium, from soft-drink cans to aeroplanes, lawsuits have alleged.
Goldman, JPMorgan and Hong Kong Exchanges and Clearing Ltd , the LME's new owners, have dismissed the lawsuits as without merit. Glencore declined to comment.
FALLOUT: At least 12 anti-trust class action lawsuits have been filed in the United States since August 2013 alleging price fixing.
In July, the U.S. Senate banking committee held a hearing on the matter, with end users represented by MillerCoors LLC calling for greater regulation of the LME and politicians urging greater curbs on banks' ownership of physical commodity assets.
The CFTC, Department of Justice and UK regulator the Financial Conduct Authority are looking into the matter.
The LME has proposed sweeping reform of its warehousing policy in its third attempt to tackle the wait times and soothe irate industrial clients. A board decision on the plan, which would come into effect in April 2014, is due in October.
(Reporting by Josephine Mason in New York; Editing by James Dalgleish)