The Federal Energy Regulatory Commission (FERC) is seeking to fine Barclays $435 million for manipulating electricity markets in California.
FERC also wants Barclays to disgorge $34.9 million – plus interest.
FERC alleged that Barclays and four individual traders violated federal anti-manipulation rules between 2006 and 2008 “by engaging in loss-generating trading of next-day fixed-price physical electricity on the Intercontinental Exchange (ICE) to benefit Barclays’ financial swap positions.”
“Barclays generally began by assembling substantial physical index positions in the opposite direction of its fixed-for-floating financial swap positions,” FERC alleged. “Barclays flattened those physical index positions in the next-day fixed-price physical markets in a manner designed to move the daily index settlement up if it was buying and down if it was selling. Barclays’ execution of its next-day fixed-price physical trading was highly coordinated and discussed amongst the traders. Barclays’ trading of next-day fixed-price physical against index produced substantial, repeated, and avoidable losses in the next day fixed-price physical markets. Barclays was willing to accept losses in its next-day fixed-price physical trading to move the settlement of daily indices in the direction that benefited its financial swaps.”
“Barclays was willing to accept losses in its next-day fixed-price physical trading to move the settlement of daily indices in the direction that benefited its financial swaps,” FERC alleged.
FERC dug up evidence of manipulative from at least four different traders on the West power desk: Scott Connelly, Managing Director of North American Power, Daniel Brin, Karen Levine, and Ryan Smith.
Brin indicated that he was “doing phys[ical] so i [sic] am trying to drive price in fin[ancial] direction” while Smith described how he “fuckked [sic] with the Palo m[a]rk[e]t,” “propped up the palo 1 index,” and was “gonna try to crap on the NP light and it should drive the SP light lower.”
Levine similarly stated that Barclays would trade physical index to “protect a position” and requested her colleagues to “keep the PV index up and the SP daily index down” while she was on vacation.
Brin and Smith also discussed how Levine asked them to help her “prop up” indices and explained how doing so required the Barclays traders to take a “daily loss” trading the physical markets.
FERC officials said that the Barclays traders knew their loss generating physical trading was likely unlawful and specifically ignored the warning of Joseph Gold, Managing Director and Head of Commodities, Americas, who had made clear the practice was unacceptable:
“Uneconomic trading activity was something which I tried to make sure was very clear to all the traders. It was something that, during training, I would frequently – that was one of the sessions I was frequently asked to do, the reason being that compliance liked my way of expressing it, which we called the golden rule. The golden rule was always, under no circumstances, lose money on a transaction for the intention of making money on another transaction.”