Investigating alleged oil price manipulation

Posted Sep 7th 2009 11:00AM by Connie Madon
Filed under: Insiders, Competitive Strategy, Oil, Technology

How do they do it? How is the price of oil manipulated?

The New York Times offers a look inside a company that allegedly manipulated oil prices and the methods they used to do it. The company is based in Amsterdam. It is little known and maintains a low profile, yet has become a force to reckoned with in the oil markets. What is the name of this company? It's called Optiver, and it employs about 600 people.

First we must recognize that we live in a new world of futures trading, one that is dominated by high-speed electronic trading. No longer does the old-fashioned "pit" trading rule the markets, even though pit trading is still a significant force. Now with electronic trading has come the use of computers, computers that have been programmed to trade faster than the human brain. Just to give you a sense of how this works, Optiver has secretly programmed its computers to complete trades in 0.5 milliseconds.

With this kind of speed, Optiver can outgun other traders and skim a few ticks from a trade before the competition gets wind of what happened.

So now you may say to yourself, "I want to work for these guys. How do I get a job as a trader?" Try answering 80 math questions in 8 minutes or less. Can't do it. You are not alone. Some 80% to 90% fail the test. Those who do pass the test can look forward to extra high income and high pressure as well.

But the Commodity Futures Trading Commission is investigating "high speed and high frequency electronic trading." Optiver, in particular, is being investigated. Thomas Lasala, regulator for the NYMEX, where oil is traded, said, "The market seems to move in reaction to you orders. ... And I don't think that is a market making strategy."

In response, Optiver maintains that it is a "market maker" and not just an opportunistic group of traders.

To date, no charges have been filed, and it will be interesting to follow where this investigation leads.

Do you believe that the oil market is manipulated?

Tags: CFTC investigations, electronic trading, inthenews, oil price manipulation, Optiver, Thomas Lasala

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Reader Comments (Page 1 of 1)

9-07-2009 @ 2:34PM

John Laou said...

You really don't need to be a Greenspan or Bernacke, to know the oil market is being manipulated by the Wall Street players, banks and many others, like Optiver.

The "supply demand" model, was completely turned around by manipulation. You could see it, when oil was making the run to $140, and the "experts" were talking about $200 oil......But the supply was increasing and the demand was dropping! I told anyone, who would listen, a year before, "you will see $35 oil again", and we did in December. Now the manipulators are moving it up, but you will see $35 or less oil, soon and it will stay down for a long time. We have not even started to feel the full force of this recession/depression.

9-07-2009 @ 8:53PM

william lindblad said...

This not deserve comments as you have to be joking.

A ride on the Cape May Ferry at the height of the oil embargo revealed (visually) many small tanker freighters at anchor in Del. Bay. All were sitting low in the water.
(that means that their holds were full)

I am sure that they were full of water for ballast for an impending hurricane and were taking shelter from the forthcoming storm. (there was no storm, the ferry was still running.)

As the Coast Guard never boarded any of these vessels to
check cargo manifests and not a soul was ever prosecuted I have to ask your favorite question.

WHAT DO YOU THINK?

I RODE THE DAMN FERRY AND I SURE DO KNOW WHAT I WAS LOOKING AT - ESPECIALLY AFTER I JUST SPENT THE LAST TWO MONTHS WAITING IN LINE FOR 5 GAL. OF GAS!!!!!

DO YOU THINK THAT THINGS HAVE CHANGED????