On April 20th, oil markets
did something they never had before
and they crashed, went into negative territory
and closed the day at -$40.
Meanwhile, in a place called Theydon Bois in Essex
a group of nine traders lead by a guy called Cuddles
made $660 million, over the course of a couple of hours.
The price of oil has collapsed to a record low.
We've never really seen anything like it.
WTI this morning, down more than 35%.
People maybe wouldn't have been so surprised
if the oil price had fallen to zero.
But the oil price went to -$38.
It went far lower than anyone had expected.
And so lots of people in the market were saying
well, hang on, something else is going on here.
A couple of months later, I started to get wind
through a kind of network of sources
that a tiny firm in the outskirts of London
had made a huge amount of money that day
and potentially had some part to play in what happened.
The information we got was that nine traders
at Vega Capital London had made in the
region of $660 million in one day.
As a group, I think they made as much money in one day
as Apple makes from its international sales in one day.
I mean, it's an insane sum of money.
Did they pull off a fantastic trade?
Did they predict the way the market
was moving and get it absolutely right?
Or was there something else going on and had they actually
done something that breached market rules
in a bid to sort of push the market?
And that investigation is ongoing.
So Paul Commins is a trader
who cut his teeth in the pits in the 80s and 90s
when everyone had a nickname, his was Cuddles.
If you can imagine, that was a very sort of
cut-throat type of world where people are doing
you know, hundreds of thousands
and millions of dollar trades by shouting at each other.
Get five and a half!
Giving hand signals and then sort
of scrawling on scraps of paper.
The culture of the trading pits in London
was very influenced
by the working class guys who became traders there.
They weren't like the city bankers
that had gone before them, they weren't usually
Oxford or Cambridge, you know, 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 traders in the pits
and Cuddles, in his you know, oil and gas pit
was described to us as amongst the top three
you know, in amongst that, was very successful
and made you know, very large amounts of money
as a young man, but inevitably, mechanization
and the arrival of electronic markets
was the kind of death knell for the pits
and in 2005, the IPE closed down.
And when the pits shut down,
a lot of the traders who worked there
lost their jobs or quit or went to work
for financial institutions, but Paul Commins
decided to start his own trading collective out in Essex.
Some of them are ex-pit guys
cut from the same cloth as him,
lots of them are actually sort of, in their twenties
and they're, his, you know, drinking buddies son.
Or they're his own kid's friends from football.
You know, they're young lads, 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 let 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's maybe slightly flamboyant,
with a sort of Cockney accent, Guy Richie style accent.
You know, not afraid to splash the cash,
but is probably pretty bright
and has done well for themselves.
Don't even make sense, does it?
But, you know, these guys,
they drove around very nice Rolls Royces and Bentleys,
they went to places like Marbella on holiday.
Theydon Bois is a very wealthy place.
You have to have considerable income
to be able to afford to live in that village.
It's a really nice place to live
and it's 20 minutes tube ride away from the city.
Earlier in the summer, we have this lead,
which is that there's this tiny firm
called Vega Capital London,
and they were the biggest winners
from the biggest oil crash in history.
You know, anyone that covers market schemes
is going to be surprised about that.
You know, you're thinking your BP's of the world,
or your Glencore's, but it's this tiny firm.
And one of the big challenges that we had
was actually finding out who worked 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 construction.
If you do basic online searching, it's very difficult
to find anyone who's publicly connected to the company.
So, inevitably, we were incredibly curious at this point.
Like, who the hell are these people?
The more reporting we did,
the more it became clear that this group were connected
socially as well as professionally.
They went to weddings together, they played golf together,
they would go on holiday together.
We found out that a number of them were members
of the West Ham Supporter's Club in London.
A few of them started companies together.
So you could see all the connections between them
and start to see a distinct group emerging.
And it really just was this kind of shock,
that, you know, this wasn't just like a hedge fund,
or a firm you've never heard of.
This was actually a group of buddies,
who all had the same experience on this day
and had all made a huge amount of money.
So if you're an oil trader,
there's a number of different ways you can trade,
and probably the most popular is WTI Futures Contract.
And it's basically a contract that says
I'm gonna buy a thousand barrels of oil from you
at this point in the future,
or I'm going to sell a thousand barrels of oil to you
at this point in the future.
It's actually just a financial contract
to gamble on, to predict
whether oil was gonna go up or down.
On the 20th of April in Essex,
there had been signals for a while
that this was going to be an exceptional day
in oil markets.
And we know that some of them arose early
and started their trading in the early hours of the morning
while it was still dark outside.
Essentially what they were doing
is buying contracts that gave them an obligation to buy oil
at whatever the price ended up at 2:30pm.
So they're basically placing a bet
that oil's going to fall throughout the day.
But they're simultaneously selling lots of oil as well,
and whether they make a profit, how much profit they make
is the difference between what they buy the oil for
and what they sell the oil for.
Now, of course, we now know throughout April 20th
the price dropped and dropped.
So, this is going very well for them.
You know, they are committed to selling oil at these prices
and the prices are continuing to fall
which means they're gonna be able to offset it
and buy oil at cheaper, at the end of the day.
Now, once it gets to kind of 1:30, 2pm,
that's when things start to get really interesting.
Suddenly there's a kind of influx of buyers and sellers,
you know, as desperation increases in the market
and trading volumes go up. Now at 2:08pm exactly,
something bizarre and unprecedented happened,
which is that oil passes into negative territory.
And it fell to a record level of -$38.
We've never seen anything like it, period,
in terms of the contraction of the global economy.
That huge gulf between what they were buying the oil for
and what they were selling it for
enabled them to make more money
than they ever thought possible.
So their profit was the difference between -$37
and all of these positive numbers
on every contract they sold.
The price of crude briefly hit -$37 a barrel.
For one group of traders operating from a small office,
it was a very, very profitable day.
It's important to remember
that this had never happened before,
in the history of oil trading. No-one could've predicted it.
I can't think of another example
of where you enter a trade and you get paid on both sides,
you get paid both to sell and to buy.
You know, it's unthinkable.
One thing we know about the Cuddles trading arcade
is that, they were very comfortable taking large risks
and, you know, you have to be clear, this was a large risk.
Yeah, we spoke to oil traders,
both people that know these guys and people that don't,
and they all say that this is, you know, incredibly risky.
And that's actually what stops a lot of oil traders
doing trading like this,
they simply aren't willing to stomach the risk.
But Cuddles and his friends were.
So when the kind of final calculations came down,
the group of the nine most profitable traders
made $660 million, or thereabouts between them.
I mean if you can imagine, I think three or four of them made
in excess of $100 million each.
One of the astonishing things about this trade
is that two of the individuals
who made more than $100 million in a single day
were in their 20s. One of them was 22 years old,
you know, only a few years earlier
he'd been posting on his social media
about doing teenage stuff with his mates in town,
and going to see girls and rap music.
And here he is a few years later, making $100 million
in a single day's trading.
When me and Liam discovered that, we were just -
we couldn't believe it,
we couldn't believe what we were seeing.
Oil trading is a zero sum game.
Anytime you're making money as an oil trader,
someone else is losing it.
Amongst the biggest losers were the investors
in this Chinese fund, Crude Oil Treasure Fund.
There were thousands of them, and they lost everything.
Lots of people had put their savings into oil funds,
they lost money that day.
Big banks and brokers who sort of stand in the middle
of trading parties, they lost money that day.
And another interesting thing
is that oil producing countries like Kuwait or Canada,
they sell oil as an average of the WTI closing price
over the preceding month.
So the fact that one of those numbers in that average
was -$37 meant if you can imagine,
countries like Saudi Arabia and Kuwait
potentially lost a couple of dollars
on every single barrel of oil they sold that month.
Vega Capital's traders made
such an extraordinary sum of money,
that it was inevitable there would be some scrutiny
of what they did.
But it wasn't just the sums of money they made,
in the vital half an hour
before the settlement price was set,
they were by far the biggest sellers of oil futures
in the market, which is an incredible thing to think about,
when you consider that the other participants
in that oil market are gonna be the world's biggest banks,
you know, oil majors, BP and Shell,
and here you have a group of nine guys in Essex
who were having this significant influence
over a global market for oil.
I mean, I think you have to assume that
if these guys had made $7 million or $10 million,
they probably would be celebrating in Essex right now,
but the fact that they made closer to $700 million
has meant that they are facing understandable scrutiny.
We wrote individually to all the Vega traders
who did exceptionally well that day,
and we got a letter in response from a law firm
representing the group,
and the law firm was at pains to point out
number one, they haven't been accused of any wrongdoing,
that they all traded independently and separately,
and they'd basically all made up their own minds
that this was what was going to happen in oil markets
based on publicly available knowledge,
and decided to execute this trade.
What I love about these stories,
is there's a real variance of opinion
and some people will look at what happened
and think "that must be dodgy,
they all traded at the end of the day,
they all made a huge amount of money
while all these people lost, that's shocking".
But lots of people say,
these guys are at an acute disadvantage.
They're in a market that's inhabited by, you know,
huge, technology-driven, funds and firms and oil giants
that have got all the advantages in the world
and when you get a bunch of Essex geezers,
who essentially beat the market
and find a way to make a huge amount of money,
they should get a pat on the back really,
because that's the dream.
Since this happened, a lot of the guys have
stopped trading the monthly settlements
that they'd done so well at in the past.
Several of them have set up new companies,
they've essentially gone very quiet, you know,
any kind of social media presence they had
is kind of closed down.
By all accounts they're, you know, waiting this out.
It's certainly too early to try and predict
how the regulatory investigations are going to pan out,
you know, we just don't know.
There's a number of potential outcomes for these guys,
you know, potential punishments if there are any findings
of manipulation against Vega, or anyone affiliated with it,
might be, you could be fined,
you could be banned from trading and you know,
in the most extreme cases
there have even been criminal prosecutions in the past
of people who have been found to have been
manipulating the settlement
and misconduct related to 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-changing trade with all the money
that they made and celebrated as heroes
in the trading community, you know,
they'll go down as legends.