Two congressional lawmakers are asking federal authorities to launch an investigation into a recent string of derivative trades that have captured headlines.
Reps. Ted Lieu, D-Calif., and Kathleen Rice, D-N.Y., have sent letters to the FBI, SEC and Commodity Futures Trading Commission, calling on the agencies to examine whether insider trading played a role in a handful of large S&P 500 e-mini futures trades that were the focus of a recent Vanity Fair article.
"While the aforementioned trades may be purely coincidental, their timing and scale raise serious suspicions about whether the traders received material nonpublic information that would affect the S&P and how they received such information," Lieu and Rice wrote in the Oct. 18 letter. "We urge you to swiftly investigate whether trading on insider information or any other fraudulent behavior occurred in relation to these trades."
According to the report, five trades ranging from 55,000 contracts to 420,000 contracts of the CME Group Inc.-owned derivative product were executed moments before market-moving events, suggesting the possibility that the traders behind those deals could have had inside information about a drone attack on Saudi Arabian oil fields, the U.S.-China trade war and the withdrawal of the extradition bill in Hong Kong. Those trades, which occurred between June 28 and Sept. 13, would have collectively generated about $3.75 billion in profits.
But the Vanity Fair article has also generated reported criticism from a number of Wall Street executives since its publication. At the heart of their concerns around the piece is the fact that large trades in the futures market are relatively common, thereby raising questions over the correlation between the five trades and market-moving news.
"Unless you have the trading records, which you don't, you can't tie one and one together to make two the way this story is laid out," JonesTrading Chief Market Strategist Michael O'Rourke told Bloomberg News, which highlighted several trading analysts' concerns about the piece in an Oct. 17 article.
William Cohan, a Vanity Fair special correspondent who authored the piece in question, defended the article to Bloomberg by saying he did not "make any allegations" and that he was "being reportorial" about what traders were seeing.
"Do I trust my sources? Absolutely. Are they vastly experienced? Absolutely. Does everybody see things differently? Probably," Cohan said, according to the article. "What I'm saying is 'Hey, there are regulators whose job it is to see these things and investigate them.'"
In a statement released Oct. 18, CME Group noted that it regularly monitors its markets for suspicious activity.
"As it relates to the Vanity Fair article published on October 17, 2019, regarding activities in the E-mini S&P 500 futures contract, the allegations about the trading activity are patently false," the company said. "These transactions were entered into by a significant number of diverse market participants."