THE WALL STREET JOURNAL: BIDS & OFFERS: Pricing Power: Don't tempt the traders.: “…reduce opportunities for traders to manipulate U.S. natural gas and power markets following a rash of scandals that led to millions of dollars in fines”: “The new policy means Shell traders can't discuss "spot"-market prices or details of their transactions with reporters, spokeswoman Lisa Givert says, but they are still free to discuss market sentiment.” (ShellNews.net)

October 15, 2004; Page C4

As of Oct. 1, Shell Trading, a unit of Royal Dutch/Shell Group, will no longer allow its traders to report transactions done in the over-the-counter crude oil markets to publishers that produce oil-price indexes. Instead, Shell 's separate risk-control group will send trade details in writing to publishers like Platts, whose indexes are used to value billions of dollars in energy contracts.

Other companies have taken steps to reduce opportunities for traders to manipulate U.S. natural gas and power markets following a rash of scandals that led to millions of dollars in fines, but Shell is the first major company to implement such changes broadly in the much larger and less-regulated oil markets. And yesterday, a former El Paso Corp. trader plead guilty in U.S. District Court in Houston to a charge of making false reports used to calculate the index price of natural gas.

At issue is the way energy contracts are valued in over-the-counter markets. With no formal exchange to look to, publishers have surveyed traders for the details of their transactions and used that information to create indexes that represent the value of a grade of oil at a particular time and place. (Reporters at Dow Jones Newswires, a unit of Dow Jones & Co., publisher of The Wall Street Journal, also survey traders to assess oil prices.)

The new policy means Shell traders can't discuss "spot"-market prices or details of their transactions with reporters, spokeswoman Lisa Givert says, but they are still free to discuss market sentiment.

Platts, a unit of McGraw-Hill Cos., says it uses only complete and accurate data but supports Shell 's move. "We're pleased that any company takes steps to ensure the timely flow of data continues while ensuring the data is complete, true and accurate," spokesman James Keener says.

Eliminating traders from the reporting chain removes their incentive to try to push prices in their favor, says R. Martin Chavez, founder of SunGard Kiodex, a risk-management technology and services provider. "Don't give people the power to calculate their bonus" he says, "and if you do give them that power, don't be surprised when they calculate the biggest possible number."

Directors' Cut

Nasdaq Stock Market directors trump Big Boarders -- at least when it comes to options pay in a rising market.

The value of director compensation programs at companies trading in the tech-stock-heavy market is eclipsing New York Stock Exchange listers, mostly as a result of rising option values, according to Frederic W. Cook & Co. The New York compensation consultant surveyed public filings from each stock market's largest 100 companies for a one-year period ended May 1 and found that average total value of board pay increased by 53% at Nasdaq companies and 7% at NYSE companies.

The increase doesn't necessarily translate into a big rise in annual take-home pay for board members, however. Beverly W. Aisenbrey, an F.W. Cook managing director, cautions that stock-option value is more about the application of option-pricing models than real value on hand for directors, who typically can't, or don't, exercise options until they depart the board.

Still, the results show that at a time of rising stock prices, board members -- like the executives they oversee -- stand a better chance to reap handsome rewards if their company's shares are in the money when they are ready to exercise options.

The median value of annual pay for directors at companies in the Nasdaq-100 with no committee seats was $235,272 during the period, compared with $149,678 at NYSE-100 companies. Median pay for Nasdaq audit committee members and chairs was $241,000 and $248,470, respectively, compared with $157,025 and $165,438 at Big Board companies.

But if the cash component is broken out, NYSE corporate board pay outpaced Nasdaq, with noncommittee NYSE directors earning a median $56,000, compared with Nasdaq's median $36,000 cash payout, for example. NYSE companies are also increasingly compensating directors with "real stock," meaning actual shares rather than options.

Either way the pay data are sliced, compensation for directors continues to escalate across the board as their workload, scrutiny and responsibility increases, Ms. Aisenbrey says.

Research Repeat

Lehman Brothers Holdings Inc. took the top spot in Institutional Investor magazine's annual All-America stock-analyst rankings released yesterday, repeating from last year. The magazine asks large investors to rank stock analysts, and this year 3,500 portfolio managers and other "buy side" professionals from nearly 700 institutions weighed in on the question of which Wall Street firm turns out the most valuable research.

Merrill Lynch & Co. came in second in the poll, moving up one spot from last year. Zurich-based UBS AG rose two slots to third. Morgan Stanley dropped to fourth from second place in the rankings, while Citigroup Inc.'s Smith Barney unit fell to fifth from fourth.

--Compiled by Gene Colter, with contributions from Katya Kazakina, Kristen McNamara, Phyllis Plitch and Lynn Cowan