Two Royal Dutch Shell subsidiaries and an individual crude oil futures trader have agreed to pay $300,000 to settle charges by the U.S. Commodity Futures Trading Commission (CFTC) of executing prearranged crude oil futures trades on the New York Mercantile Exchange (Nymex) on at least five occasions between November 2003 and March 2004.
The CFTC issued an order last Wednesday instituting proceedings against Shell Trading US Company (STUSCO), Shell International Trading and Shipping Co. (STASCO), and Nigel Catterall, who was the chief trader on behalf of STUSCO. The respondents simultaneously accepted a settlement of the charges. In consenting to the entry of the CFTC order, STUSCO, STASCO, and Catterall neither admitted nor denied the findings made in the order.
On each of the five occasions cited in the order, the CFTC said, traders for STUSCO and STASCO prearranged the trades by agreeing in advance on the quantity and the futures settlement month, agreeing to take opposite positions in the trade and executing the trade on Nymex. The order finds that Catterall was involved in the prearrangement of some of the trades.
"By determining trade information such as price and quantity outside the pit and then using the market mechanism to shield the private nature of the bargain from public scrutiny, both price competition and market risk are eliminated," the CFTC said in its order.
"In this case various telephone conversations between STASCO and STUSCO traders, including Catterall, pertaining to the specific quantity and delivery month of the contracts to be traded prior to the submission of the orders and the execution of the trades and agreeing to take the opposite positions in the trades, establish that the resulting trades were prearranged and thus fictitious sales."
The CFTC order finds that the trades constituted fictitious sales in violation of the Commodity Exchange Act (CEA) and noncompetitive transactions in violation of the CFTC's regulations. The order directs STUSCO, STASCO and Catterall to cease and desist from further violations of the CEA and also directs STASCO to pay a $200,000 civil penalty, and Catterall to pay a $100,000 civil penalty. Separately, Nymex has taken disciplinary action against its member firm, STUSCO, and an employee of the firm.
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