Look how easy it is to manipulate a London futures market

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Broker Fined for Market Abuse in FSA Crackdown

By Javier Blas
Financial Times, London
Wednesday, June 3, 2010

http://www.ft.com/cms/s/0/16e786d4-6e93-11df-ad16-00144feabdc0.html

A commodities broker was fined for market abuse on Wednesday in the first such action by the Financial Services Authority.

The move is a sign that the City regulator is starting to crack down on price manipulation in the London-based raw materials markets.

The UK is home to the world's second-largest commodities centre, after New York, with trading in important benchmarks including Brent oil, copper, aluminium, gold, silver, white sugar, cocoa, and coffee.

... Dispatch continues below ...



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The UK watchdog's move comes after the US regulator, the Commodity Futures Trading Commission, toughened its approach. The FSA said it had fined Andrew Kerr, a former broker at Sucden Financial, L100,000 and banned him from working in the financial industry. Mr Kerr has agreed to settle the case.

The regulator said Mr Kerr "deliberately manipulated" the Liffe robusta coffee futures and options markets on August 15, 2007, on behalf of a client, which it did not identify. It is unclear whether the FSA will take action against the client, but coffee market participants said it was likely to do so.

Mr Kerr organised a series of trades during a key period of the day, which serves to price options, to boost artificially the price of coffee futures, the FSA said. Mr Kerr moved the market to $1,752 a tonne, up from about $1,145. The "small size of the coffee futures market meant that it was particularly vulnerable to price manipulation," the FSA said.

"Mr Kerr's financial benefit from the market manipulation was limited to his commission," the regulator said. But it added he was "doubtless motivated" by a desire to attract further business. Brokers estimated the commission at as low as $100 and no more than $500.

Sucden Financial is owned by sugar trading house Sucres et Denrées of France. Tariq Ahmad, director of strategy, said that Mr Kerr left 15 months ago. "The FSA had no criticism of Sucden Financial's supervision, or internal procedures."

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