A Cabal of Energy Traders accused of subterfuge in spark market

The U.K.’s energy regulator is investigating whether traders manipulated some derivatives prices, according to documents seen by Bloomberg News and a person familiar with the situation.

The probe, known as “Project Damson,” is focused on alleged efforts by U.K. traders to push up the price of spark spread contracts, which reflect the profitability of gas-fed power plants, by posting and then canceling orders in short succession, the documents show. Authorities across markets have been clamping down on so-called spoofing since it was cited as a catalyst for the Flash Crash in U.S. equities in 2010.

The investigation, which hasn’t previously been reported, comes amid a broader push by European regulators to increase transparency in wholesale energy markets. Since October 2015, utilities have been required to send details of every trade they carry out to agencies that monitor the data for evidence of manipulation and insider trading. The previous month, the U.K.’s Office of Gas and Electricity Markets, or Ofgem, wrote a public memo to traders outlining what constitutes manipulation. Firms or individuals found to have broken the rules can be publicly censured and may be subject to financial penalties by the agency. So far, no individuals or firms have been sanctioned in the U.K. over this issue.

“We monitor the market closely,” Ofgem said by e-mail, declining to comment on the Damson investigation. “Where necessary, we have issued open letters to provide further guidance and clarification to market participants, based on what we have seen in the market and issues that have been raised with stakeholders.”

While short-term manipulation in derivatives markets would not directly affect the cost of electricity for consumers, it comes at a heated moment for the industry. Electricity prices in the U.K. hit their highest levels in eight years and energy costs have become a contentious issue. Prime Minister Theresa May said last month that it wasn’t right that two-thirds of energy customers are stuck on the most expensive tariff. Shortly after, Britain’s government said it planned to announce changes to retail energy markets, without providing any further details.


The clean-spark spread measures the profitability of producing power from natural gas, taking into account carbon costs. Traders can buy or sell standardized contracts on the Intercontinental Exchange Inc.’s ICE Futures Europe market or as over-the-counter derivatives via brokers.

One individual identified by the investigation made and then canceled multiple buy orders in short order, pushing up the price of a summer 2014 contract and boosting the value of his trading positions, the documents show. Ofgem investigators consulted the U.K.’s main financial regulator, the Financial Conduct Authority, in the early stages of the probe, the person with knowledge of the matter said. The FCA is no longer involved, the person said.