The US Commodity Futures Trading Commission (CFTC)has initiated an inquiry into suspicious trading behavior in oil futures that occurred shortly before major geopolitical decisions by President Donald Trump regarding the Iran conflict. According to a Bloomberg report, the CFTC investigation is focused on oil futures contracts on CME’s NYMEX and Intercontinental Exchange (ICE).
Reportedly, the CFTC is examining at least two major cases of unusual trading volumes within a two-week period. The first happened on March 23, when billions of dollars in oil futures were exchanged about 15 minutes before US President Donald Trump postponed plans to strike Iranian energy infrastructure.
The second one occurred on April 7, prior to the announcement of a two-week ceasefire between the US and Iran. Both instances saw trading volumes soar dramatically.
Last week, investors also bet $950 million on oil prices just hours before the ceasefire announcement.
The announcements caused oil prices to tumble and equity markets to respond positively, with S&P 500 futures soaring over 2.5%, and crude oil futures declined around 6% in a day.
These coordinated actions in the asset classes have raised suspicions, especially with the size and timing of the trades. Exchanges have been asked to provide “Tag 50” identification data, which assists in identifying entities behind the trades.
The probe is part of more general issues of insider trading in the traditional derivatives markets, as well as the new prediction markets. CFTC Officials have reiterated their position on market integrity.
CFTC Chairman Michael Selig stated, "I want to be crystal clear: to anyone who engages in fraud, manipulation, or insider trading in any of our markets: we will find you, and you will face the full force of the law."
Similarly, enforcement authorities have focused on increased vigilance. The enforcement director of the agency, David Miller, has said previously that the rules on insider trading apply to all forms of markets, including prediction markets.
A CME spokesperson noted, "Nothing is more important than market integrity," adding that surveillance activities are ongoing and that any inquiry must be expanded to newer types of markets like prediction markets.
The investigation has attracted the attention of lawmakers with calls for more scrutiny over whether the government information was misused. Senator Elizabeth Warren pointed out the importance of enhanced oversight, noting the dangers of open derivatives markets in the case of geopolitical events.
The impacts are not limited to financial markets since oil prices are directly related to the cost of fuel to consumers. As Brian Young, a former CFTC enforcement director, explained: “After all, prices at the pump closely correlate to oil futures contracts, so we’re talking about American pocketbooks at stake here.”