Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Amaranth Natural Gas Manipulation

The civil complaint
filed by CFTC against Amaranth has a fascinating description of how Amaranth allegedly
manipulated the settlement price of natural gas futures. The most
interesting part is Exhibit C which contains the letter that Amaranth
wrote to the exchange explaining its unusual trading in the final
minutes of trading on expiry day. It tells a story of Amaranth trying
to reduce its calendar spread position by first reducing the far month
position and then reducing the near month position by the same
amount. Amaranth argued that the near (expiring) month trades took
place in the last few minutes because that was when the extent of
reduction in the far month position became clear.

The CFTC complaint contains a whole set of instant messages (IM)
exchanged by Amaranth’s traders about the manipulation that they
were attempting. What is interesting about many of these instant messages is
that they also show the IM Administrator sending messages to all
participants stating “Note: This session is recorded and this
recording is the sole property of Amaranth”. This does not
appear to have deterred the traders from talking of their manipulation
quite explicitly.


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