US regulator fines Barclays over power prices

The US electricity market regulator has fined Barclays $470 million, a record penalty, over manipulating power prices, in the latest heavy regulatory sanction against the UK bank.

The Federal Energy Regulatory Commission’s fines matched the amount proposed last year when it accused four former Barclays traders of manipulating physical power prices in California and other western US states in order to fraudulently boost financial derivative positions.

Barclays intended to oppose the fine, saying: “We believe that our trading was legitimate and in compliance with applicable law. The Order Assessing Civil Penalty is by its very nature a one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard.”, cited by Financial Times.

However the penalty could not be final unless the UK based bank pays the fine in 30 day period. Otherwise, the case will be heard again in a Federal court that could make its own findings, lawyers said.

The announcement came the same day Barclays appointed a new finance director from JP Morgan Chase in a move to strengthen the investment banking expertise of its senior management. JP Morgan has also been warned of a probable FERC (Federal Energy Regulatory Commission) enforcement action, the bank has acknowledged.

FERC alleged the bank traders made large physical index bets that were opposite their position in financial swaps at four different trading nodes. They then traded power for delivery the next day in order to swing the value of swaps up or down.

“Put simply, respondents traded fixed price products not in an attempt to profit from the relationship between the market fundamentals of supply and demand, but instead for the fraudulent purpose of moving the index price at a particular point so that Barclays’ financial swap positions at that same trading point would benefit,” the order said cited by Financial Times.