San Diego Gas & Electric Company (SDG&E) will pay $80,000 to settle a charge by the Commodity Futures Trading Commission (CFTC) that it engaged in wash sales of New York Mercantile Exchange (Nymex) natural gas futures contracts in 2006.
A CFTC release states the SDG&E placed market orders through an introducing broker to simultaneously buy and sell natural gas contracts on Nymex for delivery months August through October 2006. According to the release, “SDG&E was aware that the introducing broker placed each of the orders with the Nymex floor brokers together and requested that the prices relevant to each of the buy and sell orders be at or near the same price. The orders were then executed by brokers on the Nymex trading floor at or about the same price and approximately at the same time” re-establishing and liquidating Nymex contracts previously held by SDG&E.
“At the time the transactions were executed, SDG&E believed the transactions were permissible under Federal Energy Regulatory Commission rules and was not informed by the licensed broker with which it placed the orders that under rules administered by the CFTC the transactions in question were prohibited,” says Jennifer Ramp, a spokesperson for SDG&E. She adds that since this happened, SDG&E has stopped using the brokerage firm that carried out the purchase and sale in question.
“This creates the illusion that there’s more market manipulation than meets the eye, and coming at a time of the debate over financial regulatory reform, it’s extremely disappointing,” says Phil Flynn, senior energy analyst at PFGBest Research, adding, “The firm did seem to cooperate, and we don’t really know the whole story.”
A CFTC spokesperson would not comment on the charge.
Click here for the full CFTC order.