US, EU in talks over oil price-fixing

Sep 08 2013 13:00

London - US regulators are in talks to join European officials in their investigation of the oil markets, a European politician said, as both sides hunt for signs that trading benchmarks have been compromised.

But while the European Union has already raided the offices of major oil companies and price publisher Platts, the US derivatives regulator has yet to launch a formal probe, two people familiar with the matter said.

"(The European Commission) is talking to regulators in the different member states and to the US," Arlene McCarthy, vice-chair of the European Parliament's economic and monetary affairs committee, told Reuters.

"They are talking to the CFTC (Commodity Futures Trading Commission) and the Department of Justice, so there's quite a level of co-operation going on there," she said.

The European probe is likely to last until next May and is on a similar scale to the probe into the Libor interest rate benchmark, McCarthy said.

The EU executive in May raided the offices of oil majors BP, Shell and Statoil as well as price reporting agency Platts in an investigation of suspected manipulation of oil prices.

The CFTC, a leading actor in the Libor scandal in which three large banks have so far paid fines, is also monitoring energy markets for any sign that people in the industry have manipulated benchmarks.

The agency, whose powers have been vastly expanded by the 2010 Dodd-Frank Wall Street reform law, has stepped up the pace of seeking information from market parties about the issue, one commodity industry source said.

That effort started as long ago as a year, predating the EU probe, but the agency has not found sufficient evidence to press for a more formal investigation, two people familiar with the situation said.

"There are some folks ... that really just don't like it and would like to push through some sort of enforcement action on it, but I'm not aware that it's actually made it to enforcement yet," one of the two sources said.

Year-long probe

The CFTC's surveillance unit, which does not have the power to subpoena, is carrying out the monitoring. A more formal probe would need to be done by the agency's enforcement division, but this usually requires approval by the four commissioners.

McCarthy also said the US Federal Trade Commission was looking into energy price manipulation, a development that had earlier been reported by Bloomberg.

The CFTC and the Department of Justice declined to comment. The FTC could not immediately be reached for comment.

Platts, a unit of McGraw-Hill, provides clients with energy price benchmarks set by reporters based on oil prices collected from market participants. Its assessments are used in the pricing of the bulk of a $2.5 trillion market in physical and derivatives deals.

In Europe, investigators need to sift through a huge amount of information, which means the investigation will take around a year from its inception, the lead case worker on the probe had indicated to McCarthy, she said.

"I don't think it's unlike the Libor-type investigation. They're going through thousands of pages of electronic evidence that they've picked up. It could a year because of the amount of information."

Libor rates also are based on a survey of market participants.

"They're going back to 2007 and going through emails and chats (instant messages). That's a lot of material. There are four people on the team working on it," McCarthy said, adding that the information could lead investigators to broaden the scope of their enquiries.

"If you look at the Libor investigation, the chatroom stuff led them to information they weren't expecting," she added.

In May a Hungarian ethanol producer said it had complained to the European Commission about the fact that Platts would not let it play a role in the price-setting process.

After the raids, "they had a complaint from a new entrant, and the complaint fitted in with what their suspicions were", McCarthy said.

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