Sunday, September 27, 2020

"The Mysterious London Traders Accused of Manipulating Oil Markets — and the Anonymous Hedge Fund, Rare- Coin Expert, and Day Traders Who Are Fighting Back"

From Institutional Investor:

Tracking the culprits behind April 20.
obert Mish is not an oil trader. He’s a numismatist — an expert in rare coins, precious metals, and currencies. Growing up in Brooklyn, he began by collecting stamps and playing cards at the age of four. From there, he moved on to coins and, eventually, valuable antiquities, heading out to California to start his own business in Menlo Park, Mish International Monetary. He traveled the world attending coin shows and became an authority on commodities such as gold, silver, platinum, and palladium, writing and contributing to a number of books. 
This year, two months after his 73rd birthday, Mish found himself trading U.S. crude oil futures at perhaps their most inopportune moment: On April 20, the price of oil fell to zero — and kept falling. Mish, an expert in commodities, was holding ten oil contracts as the market went over the edge.
After 50 years of inspecting currencies and stores of value from the Americas to Europe to Asia, Mish can also claim another expertise: He is an expert in counterfeit detection. That day, as he watched his oil trades go south, he picked up the phone and called one of the best market-manipulation lawyers in the country.

While much of Wall Street was on vacation in August, the battle lines were drawn in what is increasingly shaping up to be a fight over whether oil prices in April were manipulated and, if so, who was responsible.

The dominant question hanging over the debate is who will have to pay.

“I have done manipulation cases since 1976,” says Christopher Lovell, partner at New York-based law firm Lovell Stewart Halebian Jacobson, which is now representing Mish. “We have looked at the pricing patterns and done the analyses. And we have ruled out that this was the result of normal market activity. This is a classic example of manipulation.”

According to a class-action suit filed jointly last month by Lovell’s firm and Chicago law firm Miller Law on behalf of Mish, crude oil futures on the New York Mercantile Exchange traded at levels too extraordinary to be true.

The prices, which Lovell says in no way reflected any kind of “competitive market activity,” vacillated more than $55 a barrel on April 20, plunging at one point to minus $40.32 a barrel to mark the lowest intraday handle ever witnessed in the most liquid crude oil contract in the world. If that was not enough to raise doubts, the speed at which prices fell that day, the suit alleges, defied reason, with oil prices dropping more than $25 a barrel in the final two minutes of trading alone to settle at minus $37.63 — an anomaly that has yet to be satisfactorily explained.

The suit also notes that, the next day, the very same contract suddenly turned positive, rising more than $47 a barrel in the final hours of trading to expire at $10.01 a barrel, moving into positive territory and casting further suspicion on the prior 24 hours of mysterious trading.
All told, the price swings were tantamount to a 40-standard-deviation event, according to the suit.  In other words, explains Lovell, without manipulation, such an event “would not happen in the life of the universe.” He adds, “Supply and demand fundamentals do not change to that degree in just minutes, and they certainly don’t slingshot between $50 and $60 in one day. This was unprecedented in the history of the oil market.”

Mish, like many market participants, was caught in the undertow of collapsing prices, losing $92,490 when he was forced to sell his long position in May oil futures at negative prices. Unlike many market participants, however, the veteran commodities trader is refusing to swallow his losses. Instead, he’s leading a class action to identify and hold accountable the players who sought to drive the market below zero. The suit alleges that Vega Capital London, a trading firm registered in Essex, England, and a cohort of its traders acted intentionally to manipulate oil prices lower, minting as much as $500 million in a single day....

The Day Oil Went Subzero
"Oil’s Plunge Below Zero Was $500 Million Jackpot for a Few London Traders"