Jonathan Jones

The energy sector’s Libor-style scandal

As David reported earlier, today’s Guardian carries allegations of price-fixing in the energy markets. The paper has an account by Seth Freedman, who worked as a price reporter at ICIS Heren, detailing how he observed suspicious trades that looked like attempts to manipulate the daily index price.

Based on Freedman’s account, the alleged manipulation looks very much like that employed by City traders in the recently-exposed Libor scandal. Ironic, then, that the ‘suspicious’ trades Freedman observed came on the same day as Martin Wheatley published his review of Libor for the Treasury: Friday 28 September. Even after bankers had resigned and as new regulations for that sector were being planned, traders in the £300 billion wholesale gas market may well have been playing a very similar game.

What Freedman saw were several trades of ‘day-ahead’ gas contracts at abnormally low prices just as his company, ICIS Heren, was collecting information to set its benchmark index. Right around the 4.30pm ‘window’, six trades were reported at 58.0p, which Freedman calls ‘a massive move, half a penny or so from the mid-point of where gas was trading at that time’. For the rest of the day — both before and after the collection window — the same contracts were trading at or above 58.5p. This graph, from the Guardian, shows the six ‘suspicious’ trades:

‘Six times people have tried to force the price down, it appears to us,’ says Freedman. And he’s even given the Guardian a recording of a conversation in which a trader tells him ‘sometimes there is a feeling that somebody is taking the piss there on the day-ahead index’.

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