4 Jul 2009

Oil brokerage loses $US10m on rogue trades

6:36 am on 4 July 2009

A senior broker based at PVM Oil Futures Ltd's London office landed his firm with a loss of nearly $US10 million by making unauthorised trades, the company says.

The London-based brokerage said the trader, Steve Perkins, had taken the positions in Brent crude futures early on Tuesday.

The heavy buying during the Asian trading day when volumes tend to be lower caused global crude prices to spike to their highest level this year. Traders and analysts initially struggled to explain the price move.

After discovering the trades, PVM said in a statement on Thursday it had closed them out "in an orderly fashion", resulting in losses approaching $US10 million.

It said its brokers were not authorised to take positions in the crude oil markets. Oil brokers generally help to match up trading counter-parties such as banks and hedge funds rather than dealing themselves.

Brent crude was trading at about $US66 a barrel on Friday, down from the high of $US73.50 struck on Tuesday.

PVM is the world's largest independent broker, trading more than 100 million barrels of over-the-counter and oil futures a day on average.

The brokerage said on Thursday PVM was conducting a full investigation and it had informed the Financial Services Authority, Britain's regulatory body, as well as the InterContinental Exchange, where the majority of Brent futures trade takes place.

In May, the FSA banned a former Morgan Stanley trader who built up a hefty unauthorised oil futures position following a long liquid lunch, before hiding the deals overnight.