Regulators Accuse Brokerage of Cattle-Futures Scheme
June 21 2017 - 5:45PM
Dow Jones News
By Jacob Bunge and Benjamin Parkin
Regulators accused a Memphis brokerage of a scheme they said may
have influenced prices in the largest U.S. cattle-futures
market.
The Commodity Futures Trading Commission alleged that McVean
Trading & Investments LLC and its senior executives used
trading agreements with feedlots to accumulate bets on cattle
futures that circumvented exchange-set limits. In some cases, the
regulators said, the bets added up to a fifth of open trades on a
market that is currently worth $19 billion.
The commission said Wednesday that McVean and its officials
settled the civil charges without confirming or denying its
findings and agreed to pay $5 million in fines. McVean said it was
pleased to resolve the matter.
The accusations come as ranchers and traders have struggled with
rapid price swings in U.S. live cattle futures, which are used to
hedge the price that feedlots pay for steers and heifers. The
volatility has prompted CME Group Inc., the Chicago-based exchange
operator, to revamp aspects of the market.
Ranchers have also tried to sell more cattle through an online
auction to provide direction for futures prices. That venture has
struggled with declining participation and technical hiccups.
The CFTC alleged that Charles McVean, chairman and chief
executive of the Memphis brokerage, and Michael Wharton, its
president, in late 2012 and early 2013 placed live cattle futures
trades that would profit if the contracts' price moved higher.
After establishing those positions, the CFTC alleged in its order,
a consultant for the firm, Samuel Gilmore, called cattle feedlots
to arrange swap agreements that involved the feedlots buying more
futures contracts, also betting on higher prices. McVean Trading
compensated the feedlots for those trades and controlled the
positions, according to the CFTC, giving the firm and its
executives control over positions that amounted to about 20% of the
market.
Officials alleged that McVean's bets, which ranged from two to
four times beyond limits set by the CME, gave "a false appearance
of wide investor interest" in the contracts, potentially
influencing prices.
McVean Trading, in a statement on behalf of the firm, its
executives and the consultant, said that the settlement wouldn't
impact on its clients or capital. A CME spokesman said the CME
continually monitors and enforces market regulations, but doesn't
comment on individual disciplinary actions.
Craig Uden, president of the National Cattlemen's Beef
Association, said more regulatory oversight is needed to protect
cattle feeders from increasingly fast-paced swings in the futures
market. Mr. Uden wouldn't comment on McVean's alleged manipulative
tactic.
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
June 21, 2017 17:30 ET (21:30 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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