Posted by: el1en | July 19, 2010

Heh. How a broker spent $520m in a drunken stupor and moved the global oil price.

Calls for regulations. Again. Well okay world – please fall into pieces.

Amplify’d from www.telegraph.co.uk

How a broker spent $520m in a drunken stupor and moved the global oil price

PVM Oil Futures trader Steve Perkins bought 7m barrels of crude in late-night
trading binge on his laptop, driving the oil price to an eight-month high.

Traders work in crude oil trading pit at New York Mercantile Exchange.
Traders work in crude oil trading pit at New York Mercantile Exchange.

It’s probably not uncommon for City traders to wonder how they burnt so much
cash during a drunken night on the town.

But Steve Perkins was left with a bigger black hole in his memory than most
when his employer rang one morning to ask what he’d done with $520m of the
oil trading firm’s money.

It was 7.45am on June 30 last year when the senior, longstanding broker for
PVM Oil Futures was contacted by an admin clerk querying why he’d bought 7m
barrels of crude in the middle of the night.

The 34-year old broker at first claimed he had spent the night trading
alongside a client. But the story began to fall apart when he refused to put
the customer in touch with his desk for official approval of the trades.

By 10am it emerged that Mr Perkins had single-handedly moved the global price
of oil to an eight-month high during a “drunken blackout”. Prices
leapt by more than $1.50 a barrel in under half an hour at around 2am – the
kind of sharp swing caused by events of geo-political significance. Ten
times the usual volume of futures contracts changed hands in just one hour.

By the time PVM realised the trades were not authorised and swiftly began to
unwind the positions, losses of exactly $9,763,252 had stacked up.

The amount was almost equal to PVM Oil Futures’ entire annual revenue of $12m
and caused a $7.6m loss last year – shared by the senior brokers who are its
only shareholders.

It swiftly emerged that Mr Perkins had been relieved of his position at PVM,
but details of the bizarre incident have only just been made public after a
Financial Services Authority investigation.

According to the regulator, Mr Perkins first started trading irregularly the
day before the enormous price spike. He had been drinking heavily over the
weekend at a PVM golf event and was returning to a day off work.

As a broker, Mr Perkins was only allowed to place trades on behalf of his
clients – not using any of PVM’s own money. And records show that he placed
a legitimate order for a client at 1.34pm through his broking desk by
telephone. This was quickly followed by seven more orders with a value of
$8m using PVM’s cash.

Mr Perkins’ trading stopped for a few hours, but in the early hours of the
morning, he returned to the oil market via his laptop. He placed an
incredible $520m in orders through ICE Futures Europe, where traders can buy
or sell crude oil for future delivery and bet on whether prices will go up
or down. The first trade was at 1.22am was at $71.40 per barrel and the last
trade at 3.41am was at $73.05. During this period, Mr Perkins gradually
edged up the price by bidding higher each time, until he was responsible for
69pc of the global market volume.

By 6.30am, the broker appeared to have realised what he’d done. He sent a text
message to the managing director claiming an unwell relative meant he would
not be coming in to work and started disposing of the oil futures. When PVM
challenged his story, the broker confessed and later co-operated fully with
the FSA inquiry.

Mr Perkins told investigators that he has “limited recollection” of
the entire episode, claiming he had placed the trades during a drink-induced
stupor.

Having admitted to an alcohol problem and received treatment, Mr Perkins was
banned from trading for five years and hit with a £72,000 fine, reduced from
£150,000 because of potential financial hardship.

Mr Perkins was not available for comment last night at his £340,000 home in
Brentwood, Essex, and it is not known whether he has found alternative
employment. The FSA will consider re-approving him as a broker after the
ban, if he has recovered from his alcohol problem, but noted “Mr
Perkins poses an extreme risk to the market when drunk”. It added that
there appeared to have been “no motive” for buying up the oil.

PVM did not return calls for comment.

The investigation also shows that he was able to trade huge volumes with very
little cash up front and no position limit, exposing how it easy it was for
a single British broker on a bender to cause chaos in the oil market.

Read more at www.telegraph.co.uk

 

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