'Banging the Close': Price Manipulation or Optimal Execution?

43 Pages Posted: 22 Mar 2016 Last revised: 17 Sep 2016

See all articles by Jo Saakvitne

Jo Saakvitne

BI Norwegian Business School

Date Written: September 16, 2016

Abstract

This paper develops an equilibrium model of an alleged manipulative trading practice known as “banging the close”. The trading practice played a central role in the recent fixing scandal in foreign exchange markets, but there are also recent high-profile regulatory cases from equity, commodity and derivative markets. We show, in an equilibrium with an arbitrary number of strategic dealers, that the trading practice occurs naturally as the solution to dealers’ optimal execution-problem. It is not clear that “banging the close” satisfies economic definitions of price manipulation, but nonetheless the practice distorts the benchmark price as a measure of the fair value of an asset. We therefore develop specific policy advice for regulators who want to curb the practice.

Keywords: Forex Trading, Market Manipulation, Optimal Execution

JEL Classification: F3, G10, G14

Suggested Citation

Saakvitne, Jo, 'Banging the Close': Price Manipulation or Optimal Execution? (September 16, 2016). Available at SSRN: https://ssrn.com/abstract=2753080 or http://dx.doi.org/10.2139/ssrn.2753080

Jo Saakvitne (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
577
Abstract Views
2,488
Rank
87,068
PlumX Metrics