The U.S. Commodity Futures Trading Commission announced on July 24 that a civil enforcement case against Optiver Holding BV, two of its subsidiaries, and three employees, charging them with manipulation and attempted manipulation of New York Mercantile Exchange Light Sweet Crude Oil, New York Harbor Heating Oil, and New York Harbor RBOB Gasoline futures contracts during March 2007.

The CFTC alleges that Optiver earned in excess of $1 million for market manipulation termed “banging the market” at time of settlement. As alleged in the complaint, the scheme ultimately permitted defendants to profit regardless of the direction of the market move, provided that Optiver’s futures trading in the close and before the close was in the opposite direction of the trading at settlement or TAS position it had accumulated during the trading day.

Walt Lukken, acting chairman of the CFTC, said the defendants’ manipulative scheme involved the contracts TAS in crude oil, heating oil, and New York Harbor gasoline contracts.

TAS contracts are futures contracts, except that the parties determine at the initiation of the contract that the price of the TAS contract would be the day’s settlement price plus or minus an agreed differential. A TAS contract which has been bought or sold can be offset by trading a futures contract in the opposite direction.

Lukken said the CFTC filed the civil enforcement action in the United States District Court for the Southern District of New York against Optiver Holding BV, a global proprietary trading fund headquartered in the Netherlands, and two subsidiaries—Optiver US, LLC (Optiver), a Chicago-based corporation, and Optiver VOF, a Dutch company. The complaint also names defendants Christopher Dowson (head trader of Optiver), Randal Meijer (head of trading and supervisor of Optiver and Optiver VOF) and Bastiaan van Kempen (Chief Executive Officer of Optiver).

Lukken said the complaint charges all defendants with 19 separate instances of attempted manipulation involving the energy futures contracts on 11 days in March 2007. He said that the complaint alleges that in at least five of those 19 attempts, defendants successfully manipulated certain energy futures contracts, causing artificial prices.

“In three of those instances, defendants forced futures prices lower, and in two instances, defendants forced futures prices higher,” he added. “The complaint alleges that defendants profited by approximately $1 million from their manipulative scheme.”

Lukken said the defendants employed a manipulative scheme commonly known as “banging” or “marking” the close. “Banging the close” refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading for the purpose of attempting to manipulate prices.

Lukken claimed that Optiver and van Kempen with concealing the manipulative scheme and making false statements in response to an inquiry from the NYMEX and CFTC investigators.

“These charges go to the heart of the CFTC’s core mission of detecting and rooting out illegal manipulation of the markets,” said Lukken. “The CFTC’s Enforcement Division aggressively pursues and punishes manipulative activity to bring offenders to justice and deter others from attempting to harm the markets. Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the Commission.”

Acting Enforcement Director Stephen Jay Obie said the defendants’ manipulative trading scheme involved three futures contracts listed for trading on the NYMEX: the Light Sweet Crude Oil futures contract, the New York Harbor Heating Oil futures contract and the New York Harbor Reformulated Gasoline Blendstock futures contract.

“The manipulative scheme in defendant Dowson’s words, to ‘bully the market,’ involved trading a significant volume of futures contracts in crude oil, heating oil, and New York Harbor gasoline in the opposite direction of the associated TAS position, before and during the close of the contracts,” Obie said.

“The defendants’ goal in trading the large volume of futures was to improperly influence and affect the price of futures contracts in crude oil, heating oil, and New York Harbor gasoline,” Obie explained. “The defendants’ manipulative scheme was, in the words of defendant Meijer, ‘built on the idea that we can control the VWAP’(volume-weighted average price).”