Runnin’ Round Regulators
The end of a marking period on Wall Street can make for volatile trading. Month and quarter-end used to be the province of run and gun markup artists who tried to move stocks expressly for the benefit of their P&L.
The most blatant behavior in the stock market was curbed years ago, but commodity marts have always been a bit faster and looser.
Good luck regulating chaos:
It is Aug. 29, 2006, the final day of trading in the September, 2006, natural gas futures contract. Brian Hunter, Amaranth Advisors LLC’s top energy trader, is under pressure.
In recent months, the New York Mercantile Exchange (Nymex) has been looking at some of Amaranth’s trading. Around 11 a.m., Nymex compliance officials phone Amaranth’s compliance officer, Michael Carrieri, to say the hedge fund should trade in an orderly manner today - especially the final half hour. The last 30 minutes before 2:30 p.m. make up the final settlement period that Nymex will use to calculate the final price for the September contract.
On this day, Amaranth is a big seller, believing the September contract’s price will fall.
But Hunter ran right into the whale from Centaurus.
They kept sparring, but traded away from the NYMEX and took their battle to the ICE.
Hunter lost $600 million that day. Before he went home to swill a bottle of Solengo, he pinged a buddy on IM:
“Classic pump and dump,” he writes. “Boy I bet you see some CFTC inquiries for the last two days.”
The trader, whose handle is “crummertd,” replies: “Until they monitor swaps - no big deal - it’s all swaps now.”
Policing securities markets today is akin to herding cats.
But if people like Carl Levin have their way the freewheeling days might be numbered.
Current commodity laws are “riddled with exemptions, exclusions, and limitations that make it virtually impossible for regulators to police U.S. energy markets,” Senator Carl Levin stated yesterday. He singled out the “Enron loophole” that means regulators can put limits on speculative trading on regulated markets like Nymex, but not on unregulated markets such as ICE.
Amaranth Case puts spotlight on loopholes
Globe and Mail
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