On April 20 th, petroleum markets “ve done something” they never had before and they disintegrated, wentinto negative area and closed the working day at – $40. Meanwhile, in a placecalled Theydon Bois in Essex a group of nine traderslead by a guy announced Cuddles constituted $660 million, over thecourse of a couple of hours. The price of oil hascollapsed to a record low. We’ve never actually looked anything like it. WTI this morning, down more than 35%. People perhaps wouldn’thave been so surprised if high oil prices had fallen to zero. But the oil price went to – $38. It went far lower thananyone had expected. And so a lot of beings inthe market were saying well, hang in, somethingelse gone on here. A couple of months later, I started to get wind through a kind of network of beginnings that a insignificant house inthe outskirts of London had made a huge amount of money that day and potentially had some partto play in what happened. The message we gotwas that nine sellers at Vega Capital London had stimulated in the region of $ 660 million in one day. As a group, I think theymade as much coin in one day as Apple constructs from itsinternational auctions in one day.I mean, it’s an absurd sum of money. Did they draw away a superb market? Did they foresee the action the market was moving and get it absolutely right? Or was there something elsegoing on and had they actually done something that breached busines principles in a bid to sort of push the market? And that investigation is ongoing. So Paul Commins is a trader who trimmed his teeth in thepits in the 80 s and 90 s when everyone had anickname, his was Cuddles. If you can imagine, that was a particularly sort of cut-throat type of worldwhere people are doing you know, hundreds of thousands and millions of dollar tradesby yell at one another. Get five and a half! Giving hand signals and then sort of scrawling on scraps of article. The culture of the trading opposes in London was very influenced by the working class guyswho became speculators there. They weren’t like the city bankers that had gone beforethem, they weren’t usually Oxford or Cambridge, youknow, they didn’t wear Savile Row suits.They were ordinary working guys who happened to have a talent for trading and a lot of them came from Essex.I think it was 400 buyers in the pits and Cuddles, in his youknow, oil and gas pit was described to us asamongst the top three you know, in amongst that, was very successful and represented you are familiar with, verylarge amounts of money as a young man, butinevitably, mechanization and the reaching of electronic sells was the kind of death knell for the pits and in 2005, the IPE closed down. And when the pits been closed down, a good deal of the sellers “whos working” there lost their jobs or discontinue or went to work for financial institutions, but Paul Commins decided to start his owntrading collective out in Essex.Some of them are ex-pit chaps trimmed from the same cloth as him, lots of them are actuallysort of, in their twenties and they’re, his, youknow, sucking buddies lad. Or they’re his own kid’sfriends from football. You know, they’re younglads, hungry and ambitious and he brings them into the fold. And fairly shortly, he’s got you know, maybe a dozen or so traders that, they’re independent, let’s be clear but they’re all part of this collective. Yeah, I’ll cause Liam deal with Essex. I am from Essex so I feel like I’m free to, you know, get into this. Sweet, as they say. If you are to ask someone in Britain how they would imagine an Essex person, they would say someone who’smaybe slightly ostentatious, with a sort of Cockney accent, Guy Richie style accent. You know , not afraid to splash the currency, but is probably moderately bright and has done well for themselves.Don’t even make sense, does it? But, you are familiar with, these guys, they drove around very niceRolls Royces and Bentleys, they went to see places likeMarbella on holiday. Theydon Bois is a very affluent residence. You have to have appreciable income to be able to afford tolive in that village. It’s a really nice place to live and it’s 20 minutes tuberide away from the city. Earlier in the summer, we have this make, which is that there’s this tiny firm announced Vega Capital London, and they were the biggest winners from the biggest oil crash in record. You know, anyone thatcovers sell arrangements is going to be surprised about that. You know, you’re thinkingyour BP’s of the world countries, or your Glencore’s, butit’s this tiny firm. And one of the big challenges that we had was actually finding out whoworked with Vega Capital. It wasn’t immediately obvious, and at first we had absolutely no idea.If you go to the Vega Capital website, it says it’s under creation. If you do basic onlinesearching, it’s very difficult to find anyone who’s publiclyconnected to the company. So, unavoidably, we wereincredibly puzzled at this time. Like, who the hell are these parties? The more reporting we did, the more it became clear thatthis group were connected socially as well as professionally. They went to see bridals together, they dallied golf together, they would go on holiday together. We found out that a numberof them were members of the West HamSupporter’s Club in London.A few of them started companies together. So you could see all theconnections between them and start to see adistinct group developing. And it certainly exactly was this kind of shock, that, you know, this wasn’tjust like a hedge fund, or a house you’ve never heard of. This was actually a group of buddies, who all had the sameexperience on the working day and had all made a huge amount of money. So if you’re an petroleum speculator, there’s a number ofdifferent ways you can trade, and probably the most popularis WTI Futures Contract. And it’s basically a contract that says I’m gonna buy a thousandbarrels of oil from you at this part in the future, or I’m going to sell athousand barrels of oil to you at this time in the future. It’s actually time a fiscal contract to gamble on, to predict whether oil was gonna go up or down. On the 20 th of April in Essex, “thered be” signals for a while that this was going tobe an exceptional date in petroleum markets.And we know that some of them start early and started their trading inthe early hours of the morning while it was still dark outside. Basically what they were doing is buying contracts that gavethem an obligation to buy oil at whatever the price dissolved up at 2:30 pm. So they’re mostly situating a bet that oil’s going tofall throughout the day. But they’re simultaneouslyselling lots of oil as well, and whether they make a profit, how much advantage they constitute is the difference betweenwhat they buy the oil for and what they sell the oil for.Now, of course, we nowknow throughout April 20 th the toll put and dropped. So, this is going very well for them. You know, they are committedto selling oil at these expenditures and the prices are continuing to fall which means they’re gonnabe able to offset it and buy oil at cheaper, at the end of the day. Now, formerly it gets to kind of 1:30, 2pm, that’s when things startto get very interesting. Suddenly there’s a kind ofinflux of buyers and sellers, you are familiar with, as desperationincreases in the market and trading volumes goup.Now at 2:08 pm precisely, something quirky andunprecedented happened, which is that oil passesinto negative region. And it descended to a record level of – $38. We’ve never seen anything like it, stage, in the interests of contractionof the world economy. That gargantuan rift between whatthey were buying the oil for and what they were selling it for allowing them to construct more money than they ever saw possible. So their profit was thedifference between – $37 and all of these positive digits on every contract they sold. The price of crudebriefly touched – $37 a barrel. For one group of tradersoperating from a small office, it was a highly, very profitable day. It’s important to remember that this had never happened before, in its own history of oil trading.No-one could’ve foreseen it. I can’t think of another example of where you enter a sell andyou get paid on both sides, you must pay both to sell and to buy.You know, it’s inconceivable. One thing we know aboutthe Cuddles trading arcade is that, they were verycomfortable taking gigantic probabilities and, you know, you have to beclear, this was a large risk. Yeah, we spoke to oil buyers, both beings that know theseguys and beings that don’t, and they all say that this is, you are familiar with, unbelievably high-risk. And that’s actually whatstops a great deal of oil buyers doing trading like this, they simply aren’t willingto belly the risk. But Cuddles and his friends were. So when the various kinds of finalcalculations came here to, the working group on the nine most profitable traders moved $660 million, orthereabouts between them. I entail if you can imagine, I speculate three or four of them realise in excess of $100 million each. One of the astonishingthings about this trade is that two of the individuals who impelled more than $100 million in a single daylight are available on their 20 s.Oneof them was 22 years old, you know, merely a few years earlier he’d been post on his social media about doing teenage stuffwith his teammates in municipality, and going to see girls and rap music. And here he is a few yearslater, making $100 million in a single day’s trading. When me and Liam discoveredthat, we were just – we couldn’t believe it, we couldn’t believe what we were consider. Oil trading is a zero sum game. Anytime you’re makingmoney as an lubricant trader, someone else is losing it. Amongst the biggestlosers were the investors in this Chinese fund, Crude Oil Treasure Fund. There were thousands of them, and they lost everything. Pile of beings had puttheir savings into oil funds, they lost coin that day. Big banks and middlemen whosort of stand in the middle of trading gatherings, theylost money the working day. And another interesting thing is that oil produce countrieslike Kuwait or Canada, they sell petroleum as an averageof the WTI closing price over the preceding month.So the fact that one ofthose crowds in that median was – $37 made if you can imagine, countries like Saudi Arabia and Kuwait potentially lost a couple of dollars on every single barrel ofoil they sold that month. Vega Capital’s buyers compiled such an extraordinary sum of money, that it was inevitablethere would be some scrutiny of what they did. But it wasn’t just thesums of fund they obligated, in the vital half an hour before the settlement price was defined, they were by far the biggestsellers of lubricant futures in the market, which is anincredible thing to think about, when you consider thatthe other participants in that oil market are gonnabe the world’s biggest banks, you are familiar with, oil majors, BP and Shell, and here you have a groupof nine guys in Essex who were having this significant influence over a world markets for oil.I mean, I think you have to assume that if these guys had cleared$ 7million or $10 million, they probably would becelebrating in Essex right now, but the fact that theymade a little bit closer to $ 700 million has meant that they are facingunderstandable inquiry. We wrote individuallyto all the Vega brokers who did exceptionally well that day, and we got a letter inresponse from a rule house representing the group, and the law firm was at stings to point out number one, they haven’t beenaccused of any immorality, that they all tradedindependently and separately, and they’d mostly allmade up their own subconscious that this was what was goingto happen in petroleum markets based on publicly available knowledge, and decided to execute this trade. What I love about these narratives, is there’s a real variance of opinion and some people will look at what happened and think “that must be dodgy, they all sold at the end of the day, they all made a huge amount of money while all these peoplelost, that’s shocking”. But lots of people say, these chaps are at an acute disadvantage.They’re in a market that’sinhabited by, you know, massive, technology-driven, monies and houses and lubricant monsters that have got all theadvantages in the world and when you get a bunch of Essex geezers, who virtually hit world markets and find a way to makea huge amount of money, they should get a pat on the back actually, because that’s the dream. Since this happened, a great deal of the chaps have stopped trading the monthly agrees that they’d done so well at in the past. Several of them have set up brand-new firms, they’ve virtually gonevery quiet, you are familiar with, any type of social media presence the government has is kind of closed down. By all accountings they’re, you know, waiting this out.It’s certainly tooearly to try and predict how the regulatory investigationsare going to pan out, you are familiar with, we just don’t know. There’s a number of potentialoutcomes for these chaps, you know, possible punishmentsif there are any procures of manipulation against Vega, or anyone affiliated with it, is likely to be, you could be fined, you could be banned fromtrading and you are familiar with, in the most extreme cases there have even been criminalprosecutions in the past of people who have been found to have been manipulating the settlement and wrongdoing relatedto trader settlement. There are other outcomes too.You know, one obvious one is gonna be that they’re able to walk away from this life-changingtrade with all the money that they made and celebrated as protagonists in the trading parish, you know, they’ll go down as legends.
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