Thursday, July 01, 2010

Alcohol & Oil Don’t Mix Well on the Trading Desk!

Unfortunately, some idiots learn the hard way that alcohol and trading do not mix all that well. The crude story doing the rounds in the City these past 24 hours is a mildly humorous one. That is unless you happen to be Steven Noel Perkins, a former futures trader at PVM Oil Futures Ltd. in London.

It seems that in the early hours of the morning on June 30, 2009 following a weekend (plus a Monday) of excessive drinking, the great Mr. Perkins went to his desk at PVM and placed a trade for ICE Brent crude futures contract (for August 2009 delivery) in excess of 7,000 lots representing nearly 7 million barrels of the crude stuff.

High on alcohol, the oil futures broker, whose job was to trade orders on an execution only basis at a firm which did no proprietary trading, accumulated a long outright position so substantial that the price of Brent spiked significantly over the course of the early session.

Perkins initially lied to his employer in order to try and cover up his unauthorised trading. But alas, no boss is that dumb. What’s more, the UK watchdog – the Financial Services Authority (FSA) – came down hard on him. It noted that Perkins' trading manipulated the market by giving a false and misleading impression as to the supply, demand and price of Brent crude and caused the price to increase to an abnormal and artificial level.

So in addition to losing his job, Perkins also got clobbered with a fine of £72,000 for market abuse. The FSA also banned him from working in the financial services industry.

Alexander Justham, director of markets at the FSA, said, "We view market manipulation extremely seriously. Perkins' trading caused disruption to the market and has been met with both a fine and prohibition. This reinforces the fact that a severe sanction will apply in cases of market manipulation, even where no profit is made. Perkins' drunkenness does not excuse his market abuse. He has been banned because he is not a fit and proper person to be involved in regulated activities and his behaviour posed a risk to the proper functioning of the market."

Oh dear! However, there is a silver lining. Immediately after the incident, Perkins joined a rehabilitation programme for alcoholics and has since stopped drinking. The FSA considers that it is possible that Perkins may be rehabilitated over time and could be fit and proper again in the future.

The ban has therefore been limited to a minimum term of 5 years, and his fine reduced from £150,000 to £72,000 resulting from a combination of not causing Perkins serious financial hardship as well as taking account of his desire to settle his case early under FSA's executive settlement procedures.

He’ll drink to that! Or maybe not!

© Gaurav Sharma 2010. Graphic © Gaurav Sharma 2010

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