U.K. Regulators Find No Gas Price Abuse After Yearlong ProbeRachel Morison and Matthew Brown
The U.K. natural gas market wasn’t manipulated by traders in September last year, regulators said after a one-year investigation into buying and selling in Europe’s biggest consumer of the fuel.
A review by the Office of Gas and Electricity Markets and the Financial Conduct Authority into trading on Sept. 28, 2012, found no evidence of market manipulation, Ofgem said today in a statement. It was alleged that trades were made below the best bid before 4:30 p.m. London time, when publishers produce a benchmark index for the day, Ofgem said.
Price-reporting agency ICIS, a unit of Reed Elsevier Plc, informed Ofgem of irregular trades in October 2012 after former employee Seth Freedman flagged what he suspected was an attempt to manipulate assessments in the $480 billion market. Ofgem opened a consultation into pricing benchmarks in the energy industry in June.
“Market abuse is a very serious concern and I’m determined that where it exists, the full force of the law is brought to bear,” U.K. Energy Secretary Ed Davey said today in an e-mailed statement. “We’re proposing to introduce criminal sanctions for manipulation of the energy markets.”
The ruling comes amid investigations into financial benchmarks, including crude oil, the London interbank offered rate and foreign exchange. Five companies have been fined a total of $3.7 billion over Libor manipulation.
Four longtime traders in the global oil market claim in a U.S. lawsuit they can prove that prices for buying and selling crude have been fixed. At least seven banks including Britain’s Barclays Plc and HSBC Holdings Plc have said they are being investigated by authorities examining the $5.3 trillion-a-day foreign-exchange market and are co-operating.
It was alleged that gas was sold at 58 pence a therm just before 4:30 p.m. on Sept. 28, 2012, below the best bids, Ofgem said. That was the lowest price for day-ahead gas in almost a month, according to broker data compiled by Bloomberg.
“The sellers of the six 58 pence a therm trades have provided explanations for the transactions they entered into, supported by relevant confidential information, to demonstrate that their trading activity was not improper,” Ofgem said. “These explanations are credible and no evidence was found which disputes the explanations provided.”
Ofgem has the power to monitor, investigate and take action against organizations or individuals who carry out energy market abuse, as part of the European Union’s Regulation of Energy Market Integrity and Transparency, known as Remit. Ofgem is responsible for monitoring the physical gas market, while the FCA regulates the financial derivatives market.
Ofgem and the FCA will continue to monitor energy and financial markets, and will work together to consider any evidence of misconduct, the FCA said today in a statement. No further action is required in connection with the allegations, it said.
“This has vindicated the price reporting agencies against a sensationalist episode,” Jonathan Stern, chairman of the Oxford Institute for Energy Studies, said in an e-mailed response to questions. “They will remain under pressure to maintain utmost transparency in their methodology and decision-making, in the knowledge that at any time on any day they may be required to explain why they published the prices they did.”
Freedman declined to comment when contacted today on his mobile phone.
ICIS said in April it may change the way it calculates its indexes after some clients said they mistrust the company’s reporter-led assessments. Platts, a unit of McGraw-Hill Cos. that also provides gas-price indexes, was raided in May as part of a European Union antitrust probe into the pricing in the physical oil market.
ICIS will introduce closing-price natural gas indexes based on executed trades to run alongside some closing index evaluations in a testing phase for six months, it said following a consultation that ended March 15.
ICIS’s current methodology “allows for the potential use of incorrectly reported trades to be factored into the index calculations, which can result in inaccurate prices being published,” Statoil ASA said in a public response to the consultation.
Justine Gillen and Jacqueline Savory, spokeswomen for ICIS in London, didn’t immediately respond to e-mails and telephone calls today.