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

See all articles by Vladimir A. Atanasov

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business

Ryan J. Davies

Babson College - Finance Division

John J. Merrick, Jr.

Raymond A. Mason School of Business - William & Mary

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

Atanasov, Vladimir A. and Davies, Ryan J. and Merrick, Jr., John J., Financial Intermediaries in the Midst of Market Manipulation: Did They Protect the Fool or Help the Knave? (April 3, 2015). Available at SSRN: https://ssrn.com/abstract=2408708 or http://dx.doi.org/10.2139/ssrn.2408708

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Ryan J. Davies (Contact Author)

Babson College - Finance Division ( email )

220 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-5345 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://www.ryanjdavies.net

John J. Merrick, Jr.

Raymond A. Mason School of Business - William & Mary ( email )

Williamsburg, VA 23187
United States
757-221-2721 (Phone)

HOME PAGE: http://https://mason.wm.edu/faculty/directory/full-time-faculty/merrick_j.php

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