Oil Traders Beware: U.S. taps new tools to find fraud in volatile commodities market

[Tom Kirkman + 8,860]

The DOJ is looking for fraud in oil trading markets, specifically at the oil crash last month, supposedly caused by the China Flu Panic.

 

A related comment from elsewhere:

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" tl;dr - DOJ leaked they’re going after JPMorgan and others for precious metal manipulations. Non-bank/traders watchers of the Precious Metal space allege the big banks (JPMC, Scotia, etc.) have been surprising the true price of Precious Metals and note the fact the DOJ leaked this story is a clear shot across the bow, particularly at Chase. "

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Anyway, traders should be aware that the DOJ is actively sniffing around for fraud in oil trading.

 

Traders Beware: U.S. taps new tools to find fraud in volatile commodities market

WASHINGTON (Reuters) - When the U.S. Department of Justice charged a handful of JP Morgan Chase & Co (JPM.N) traders in 2018 and 2019 with alleged commodities futures manipulation, it wasn’t the first time the government had probed the bank’s metals trading activities.

The Commodity Futures Trading Commission (CFTC) investigated the same business as part of a similar probe of the silver market years earlier, but it was not able to build a case with the data it had at the time, according to U.S. court filings and a person with knowledge of the aborted probe.

Since then, leaps in the agencies’ data analysis capabilities have enabled them to detect and prosecute increasingly sophisticated forms of manipulation in the commodities futures markets which for decades have gone under-surveilled, according to ten officials and industry experts.

The Justice Department fraud division is beefing up with the creation of a sub-unit specializing in combating commodities fraud overseen by Avi Perry, a trial attorney who has prosecuted high-profile cases involving trading powerhouse Tower Research Capital, Merrill Lynch Commodities Inc, and the ongoing JPMorgan probe, according to two sources.

The unit is also hiring a handful of additional trial attorneys, according to the sources and online job postings. A Justice Department spokesman said the agency intends to fill the positions “promptly”.

The unit is part of a broader Justice Department initiative to dramatically expand the scope of market manipulation the agency targets for criminal prosecutions, beyond traditional insider trading and futures manipulation into a range of asset classes, sources told Reuters.

The effort, if successful, raises the stakes for traders with potential jail-time, while banks, brokers and prop trading firms could face chunky fines and business curbs as the agency gets better at detecting potential misconduct across institutions.

The new-found expertise may also give the agencies an edge as they scrutinize extreme market volatility sparked by the novel coronavirus disruption, including last month’s historic oil price crash. The CFTC is reviewing how the U.S. crude oil benchmark fell below $0 a barrel for the first time ever.

“There is just a wealth of information there, which is going to give us years and years of cases to come, I would expect,” Robert Zink, chief of the Justice Department’s fraud section, a unit of the agency’s criminal division, said of the data in an interview.

The Justice Department’s commodities crackdown has recently targeted “spoofing,” whereby futures traders falsely create the impression of strong demand or supply and then capitalize upon the market reaction.  ...

     (more in the article link)

 

 

 

@TomTom  @Rodent

 

[Dan Warnick + 6,100]

Good luck to them!  Algorithms ought to be illegal, IMHO.  There is absolutely no level playing field with algos in the mix.

[Tom Kirkman + 8,860]

13 minutes ago, Dan Warnick said:

Good luck to them!  Algorithms ought to be illegal, IMHO.  There is absolutely no level playing field with algos in the mix.

Careful there, you might get the oil traders riled up a bit ...   : )

[Dan Warnick + 6,100]

1 minute ago, Tom Kirkman said:

Careful there, you might get the oil traders riled up a bit ...   : )

The regular oil traders hate them too.  It's the banks shouldering in and using the algos to harvest everyone else.  On one of their "nice" days they shave pennies to make themselves 10s of millions of $$; small time traders are simply harvested.  And it's not only the algos, they do the shaving by buying/building private data lines that, you guessed it, shave off .001s of seconds so they get there before the other trading houses and most certainly before those of us "trading" online.  I say let everyone gamble, just make it a level playing field.

[Dan Warnick + 6,100]

The Gazillion-Dollar Standoff

The Gazillion-Dollar Standoff Over Two High-Frequency Trading Towers

The hunt for a millionth-of-a-second advantage in the town best known for Wayne’s World is getting heated.

In a weedy field 35 miles west of Chicago squats a tidy red-brick building with a peaked roof, about the size of a one-car garage. Against the eastern wall, reaching just above the roofline, are poles equipped with small dish antennas that send microwave signals to and gather them from financial markets on the East Coast. At the same time, the site communicates via subterranean cable with an enormous steel-and-glass building across the street. That fortress is home to CME Group Inc., a $63 billion exchange where some of the world’s most vital financial products trade, including derivatives on oil, gold, U.S. Treasuries, and the S&P 500. If you want to be a serious player in global markets, you have little choice but to stash your trading machines here.

The little brick hut in Aurora, Ill., is part of New Line Networks LLC, a joint venture of Chicago’s Jump Trading LLC and Virtu Financial Inc. of New York City, two of the nation’s most successful high-frequency trading firms. In 2016, Jump Trading paid $14 million for the 31-acre plot where the building sits to be close to the CME center.

(full story at the link)

[Dan Warnick + 6,100]

High Frequency Traders Turn to Towers for Competitive Advantage

(This is the full text)

According to Information Week Magazine: “A one (1) millisecond advantage in trading applications can be worth $100 million a year to a major brokerage firm.”  In the wireless arena it is referred to as “latency,” i.e., how much time it takes for a packet of data to get from one designated point to another.

Traders making millions of transactions a minute recognize the superiority of wireless for sending and receiving data. Jump Trading LLC recently installed microwave antennas across the street from the data center operated by CME Group, the world’s biggest futures exchange located just outside of Chicago. The development was precipitated by the need to submit trades faster, and the company is not alone. Many companies are installing microwave equipment around the facility to stay ahead of other competition. According to ZeroHedge.com, faster data transfers can make the difference between billions in profits or losses for traders. Placing microwave towers close to the CME data center, reduces the amount of time data is transferred by fiber-optic cable, and allows trading firms to operate faster.  

Among the other companies encroaching around the facility is McKay Brothers LLC and Webline Holdings LLC. McKay says it’s about to build the tallest microwave tower in the region. The company specializes in providing access to its microwave network to high-speed traders. It has approval to build a 350-foot high microwave tower close to CME Group. Webline has already installed microwave equipment on a utility pole near the data center.

Webline’s microwave network stretches from Illinois to New Jersey, where the Nasdaq data center is located, ensuring high speed transactions. While traders continue to jockey for better tower positions, CME announced it was considering allowing rooftop access, possibly by installing a microwave tower like the one next to the headquarters of the New York Stock Exchange.