Vitol Capital Management and Affiliate Settle CFTC Charges That They Failed to Disclose the Extent of Information Flow between Them and Thereby Circumvented Position Limits

By Order dated September 14, 2010, Vitol Inc. (VIC) and Vitol Capital Management Ltd. (VCM) settled charges brought by the Commodity Futures Trading Commission (CFTC) that they failed to disclose material information to the New York Mercantile Exchange (NYMEX) and, as a result, were able to circumvent NYMEX position limits for approximately two years.  Specifically, according to the order, VIC and VCM learned in 2007 that NYMEX misperceived the nature of the relationship between VIC and VCM, including the extent to which trading information flowed between the two entities.  While the Order does not say so explicitly, the Order implies that NYMEX was under the impression that VIC and VCM had established robust barriers preventing the flow trading information between the two entities, when in fact they had imposed only limited information barriers.  VIC and VCM were aware of NYMEX’s misperception on this point, but, according to the Order, failed to correct it.  As a result, NYMEX did not aggregate the trading positions of VIC and VCM for purposes of accountability levels and position limits until March 2009.  (NYMEX was acquired by the CME Group in March 2009.)  We describe the allegations and implications of the Order.

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