Bloomberg Businessweek - USA (2020-08-10)

19

● Whenoilpriceswent

negative,a fewtradersabovea

Londonpubmadea fortune.Did

theyalsohelpcausethecrash?

OnApril 20 thepriceofa barrelofoilfordelivery

thefollowingmonthplummeted$40inanhour,

settlingat–$37.Itwasthefirsttimecrudehad

evercrossedintonegativeterritory.Regulators,

oilexecutives,andinvestorshavestruggledto

understandhowa commodityat theheartof

almosteveryaspectofglobaltradehadfallenso

farthatbuyershadtopaycounterpartiestotake

it offtheirhands.

Butfora smallgroupofveterantradersata

tinyLondonfirmcalledVegaCapitalLondonLtd.,

themysterymatteredlessthantheresults:They

pocketedasmuch as $500 millionthatday,

accordingtopeoplefamiliarwiththematter,

whospoketoBloombergBusinessweekoncondi-

tionofanonymity.

Vega’sjackpot,whichhasn’tbeenpreviously

reported,involvedabouta dozentradersaggres-

sivelysellingoilinunisonbeforetheMayWestTexas

Intermediatecontractsettledat2:30p.m.inNew

York,thepeoplesay.It’sa tacticVega’stradersused

regularly,accordingtoanotherpersonfamiliarwith

thefirm’sstrategy,butthatdayitstradingcoincided

witha periodofunprecedentedvolatility,when

demandforfuelwaswipedoutbythecoronavirus

pandemic,andstoragespaceinCushing,Okla.,

wherebuyerstakephysicaldeliveryofWTIcrude,

hadallbutdisappeared.

NowregulatorsattheU.S.CommodityFutures

TradingCommission,theU.K.’sFinancialConduct

Authority,and CMEGroupInc.,ownerofthe

Nymexexchangewherethetradingtookplace,

areexaminingwhetherVega’sactionsmayhave

breachedrulesontradingaroundsettlementperi-

odsandcontributedtooil’sprecipitousfall,accord-

ingtopeoplewithknowledgeoftheprobes.

Within 24 hoursofthecrash,theMayWTI

contracthadbouncedbacktoabout$10abarrel.

Buttheplunge,howeverbrief,createdsomebig

losers.TheyincludethousandsofChineseand

Americanretailinvestorswho, luredbyoil’s

recentslump,hadpiledintoinstrumentswhose

valuewaspeggedtothecontract’sApril 20 settle-

mentprice.

WhetherVega’swindfallwasa resultofsavvy

trading,blindluck,orsomethingelse,theidea

thata relativeminnowcouldhavesucha profound

impactcallsintoquestionCMEChiefExecutive

OfficerTerryDuffy’sApril 22 declarationthatthe

futuresmarkethad“workedtoperfection.”

“Theideathattheanomaliesthatdaywerea

functionsolelyofsupplyanddemandis fancifulat

best,”saysJoeCisewski,specialcounseltoBetter

Markets,a lobbyinggroupthatadvocatesfor

tougherregulation.“Oilproducers,brokers,and

othermarketparticipantshavebeensentintoseri-

ousfinancialdistress.Regulatorsneedtoobjec-

tivelyandthoroughlyinvestigatewhathappened.”

SpokespeoplefortheCFTC,FCA,andCME

declinedtocomment.TheCFTChassaidit’slook-

ingtoreleasea reportonthecrashlaterthisyear.

Vegadidn’treturnemailsseekingcomment.

Prop-tradingfirmslikeVegagiveindependent

tradersaccesstotheworld’sexchanges,back-

officeservices,andextracapitaltotradewithin

exchangefora deskfee,a commissiononevery

trade,andsometimesa shareofanyprofits.Ina

trillion-dollarenergyecosystemdominatedbythe

likesofBP,Glencore,andRoyalDutchShell,prop

firmsarebitplayers.

Vegawasstartedin 2016 byAdrianSpiresand

TommyGaunt,friendswho’dworkedtogetheron

themanagementteamatanotherLondonprop

firm,TowerTradingGroup,beforebranchingout

ontheirown.In 2017 about 20 ofTower’senergy

tradersquittojoinVega,sparkinga legaldispute

thatwassettledoutofcourt.Gauntquitasa direc-

torlastyear,andSpires,44,nowownsallofthe

business.Heleftschoolat 18 totakea jobinthe

tradingpitsoftheLondonInternationalFinancial

FuturesandOptionsExchange.SomeofVega’s

tradersspenttimeattheInternationalPetroleum

Exchange,buyingandsellingbarrelsofoilusing

handsignals,beforecommoditiestradingmigrated

fromopenoutcryontoscreens.

Thefirm hasan officea short walkfrom

LiverpoolStreetstation,aboveoneofLondon’s

AllBarOnepubs,whichit shareswitha group

of mostly recent college graduates trading

cryptocurrencies for another company also

owned by Spires. But most of Vega’s traders work

from home, according to people familiar with the

firm, even more so since the U.K.’s lockdown came

into force.

While more than two dozen individuals trade

through Vega’s omnibus account, finding informa-

tion about them is difficult. Only a few list Vega as

their employer on LinkedIn. The company’s web-

site has remained under construction since Vega

was founded.

One oil investor describes the firm as some-

thing of a throwback to the days of the pits,

◼ FINANCE Bloomberg Businessweek August 10, 2020

▼ West Texas

Intermediate

price per barrel

4/1/20 8/3/20

$40

20

0

-20

-40

ILLUSTRATION BY 731. DATA: COMPILED BY BLOOMBERG