Just a few months after the Libor scandal, Barclays is fending off another set of trading abuse allegations. This time the regulator pointing the finger is the Federal Energy Regulatory Commission, which oversees the electricity, natural gas and oil markets.
In an order filed on Wednesday against Barclays, the commission says some of the bank's energy traders manipulated electricity prices from the end of 2006 to the end of 2008. In a regulatory order, the commission is demanding Barclays pay a $435 million penalty and disgorge an additional $35 million.
Barclays said in a statement that it strongly disagrees with the commission's allegations, saying its “trading was legitimate and aboveboard.†The bank added that it intends to “vigorously defend this matter.â€
What's intriguing about the commission's order is its construction of the alleged manipulation. The order suggests that the fragmented markets for electricity are vulnerable to wily trading schemes.
The commission lays out how it thinks the alleged manipulation worked. It says Barclays put on trades that were designed to skew the prices for electricity in what the industry calls the “physical†market. Those allegedly skewed prices then affected the value of other bets on electricity prices, in the so-called “financial†market.
The Barclays traders, the commission says, were prepared to take losses in the physical market to move the prices of electricity there.
The physical bets were, “not intended to get the best price on those transactions and was not in response to supply and demand fundamentals in the market,†the commission wrote in its order.
Those allegedly manipulated prices lifted the value of the financial bets Barclays had placed, according to the commission. It also argues that the gains in the financial bets were greater than the losses on the physical trades, effectively leaving Barclays with an overall profit du ring the period when the manipulation is alleged to have occurred. The commission calculates that the physical trades resulted in a loss of $4 million over the period, against gains of $35 million on the financial contracts.
To support its case, the commission cited excerpts from several messages between trades. One was from a trader called Daniel Brin. Though written in truncated, mistake-strewn fashion, the commission thinks one of Mr. Brin's messages outlines the alleged manipulation. The commission's order states, “For example, Brin indicated that he was ‘doing pays[ical] so i [sic] am trying to drive price in fin[ancial] direction.' â€
Mr. Brin left Barclays at the end of 2010, according to his LinkedIn page. He now works for an energy consulting firm called ZGlobal. Calls to his office were not returned.
