Financial Intermediaries in the Midst of Market Manipulation: Did They Protect the Fool or Help the Knave?
62 Pages Posted: 14 Mar 2014 Last revised: 7 May 2015
Date Written: April 3, 2015
Abstract
We examine a fund manager's alleged manipulation of platinum and palladium futures settlement prices. Using benchmarks from parallel electronic markets, we find that the manager’s market-on-close trading causes significant settlement price artificiality. Defying predictions that competition among floor traders should limit any artificiality, the artificiality increases in the second half of the alleged manipulation period. Between 35% and 52% of the latter-period artificiality is directly attributable to noncompetitive floor prices. Inflated floor volume contributes a similar proportion to artificiality via the exchange’s trade-weighted settlement price formula. We estimate that floor counterparties reaped more than $6.0 million in excess profits.
Keywords: Market manipulation, Bang the close, NYMEX, Futures contracts, Platinum, Palladium, Floor trading
JEL Classification: G14, G28, C72, K22, K42
Suggested Citation: Suggested Citation