Washington, D.C. – On July 19, 2011, the U.S. Commodity Futures Trading Commission (CFTC) filed and settled charges against Ecoval Dairy Trade, Inc. (Ecoval), of Wayne, Pennsylvania, for attempting to manipulate the daily settlement prices of Non Fat Dry Milk (NFDM) cash-settled futures contracts traded on the Chicago Mercantile Exchange (CME).
The CFTC order mandates that Ecoval pay a $1,425,000 civil monetary penalty. Additionally, Ecoval is required to cease and desist from violating Sections 6(c), 6(d), and 9(a)(2) of the Commodity Exchange Act, which prohibit the manipulation of commodity markets.
According to the CFTC’s findings, between September 21, 2007, and October 17, 2007, Ecoval engaged in trading strategies designed to artificially inflate the prices of December 2007 through July 2008 monthly NFDM futures contracts. The company allegedly aimed to establish a large short position at these inflated prices, profiting from the subsequent decline.
Internal emails cited in the CFTC order reveal Ecoval’s intent. One email explained their strategy as attempting to “push the market higher in order to obtain a better sales price for 2008.”
The CFTC noted that the NFDM futures market during the relevant period was characterized by low liquidity, with an average open interest of only 100 to 150 contracts across 24 months. The order also highlighted a price disparity between near-month NFDM futures and cash prices at the time.
The CFTC acknowledged the assistance provided by the CME Group in this matter. The case was led by CFTC staff members including Kenneth McCracken, John Einstman, Elizabeth Davis, and others.
Source: CFTC.gov
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