Traders sometimes get obsessed with seeing a print, or price report, at a certain price level. Sometimes they will pull some crazy moves to get the print, and sometimes regulators see those moves as a form of dishonorable trading.
One NYMEX trader for ConAgra Trade Group forced a record $100 print for crude oil futures in January of 2008, and framing that Franklin has now cost the company $12 million.
The $12 million penalty is part of a CFTC settlement in which ConAgra Trade Group did not dispute charges that it caused a non-bona fide price report.
Players in pretty much all markets dread inaccurate price reports, which can motivate further trades at bad prices and turn a single move into a cascade. But CFTC records say this particular trader really, really wanted to see that $100 print. The trader intentionally paid slightly above the best available price to get the $100 price, which the order clerk noted was likely to cause some market disruption, according to the CFTC order in the matter:
When the floor broker’s telephone clerk reported the $100 fill to CTG, the telephone clerk anticipated that the trade would have a disruptive effect on the market, telling one of CTG’s traders that once people “realize what just happened,” there was going to be “fallout of idiots, idiocy everywhere.”
In retrospect, it would appear that the clerk was correct, and that the price of that idiocy is currently printing at $12 million.
However, it is worth noting that two CFTC Commissioners dissented. Commissioner Jill Summers said the penalty was too high when guidelines suggested a figure in the range of $130,000. Commissioner Scott O’Malia said the emphasis on “disruption” sent the wrong message to market players, while a case alleging actual market manipulation would have been more deserving of the $12 million figure:
Something about numbers ending in multiple zeros brings out millennial madness in people, but in this case the clerk may have been right about idiocy—especially given the fact that crude oil futures blew past $100 to over $145 before sliding back to around $50 at the end of 2008.
I would have preferred the Commission vote to pursue a case for attempted manipulation. Shoehorning the facts alleged in the Order into a disruptive trading practice charge and coupling that with a large dollar amount fails to send the appropriate message to the marketplace–that manipulative behavior will not be tolerated.
Disclosure: "no positions"