Oil Trader Gets Pumped Out of Trading by CFTC for Attempted Manipulation

The Commodity Futures Trading Commission (CFTC ) issued an Order filing and settling charges to a Las Vegas-based trader following charges of attempted manipulation in the oil markets. Daniel Shak and SHK Management, LLC (SHK) were handed a $400,000 civil monetary penalty. The CFTC also "permanently bans Shak and SHK from trading in any Crude Oil markets, and imposes a two-year ban from trading outrights for any product or financial instrument during the closing period."

Details in the Order state that Shak attempted to manipulate the price of the Light Sweet Crude Oil (WTI) futures contracts on the New York Mercantile Exchange (NYMEX), and violated intraday spot month speculative position limits applicable to WTI futures contracts on two days in 2008.

Shak had established substantial net short positions in WTI futures contracts through Trading at Settlement (TAS). TAS is an exchange rule which permits the parties to a futures trade during a trading day to agree that the price of the trade will be of that day’s settlement price − or the settlement price plus or minus a specified differential.

Gretchen L. Lowe, Acting Director, CFTC Division of Enforcement, spoke about the verdict in a statement, saying: “Today’s action by the CFTC shows that the misuse of TAS trades and offsetting of TAS positions during the close of trading to affect settlement prices unlawfully will not be tolerated.”

Traders use a range of ill-practices in an attempt to dictate the market. A similar approach used by traders who use high-frequency trading for their advantage, whereby they place several market orders over and above the market price.When the market responds to the large number of resting orders, high-frequency firms cancel the orders and take a position on the manipulated price.

Traditional currency brokers have seen a surge in commodity trading this year, the three most popular contracts being oil, silver and gold.