A Model to Quantify the Risk of Cross-Product Manipulation: Evidence from the European Government Bond Futures Market

Alexis Stenfors, Kaveesha Dilshani, Andy Guo and Peter Mere
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Kaveesha Dilshani: University of Technology Sydney
Andy Guo: University of Technology Sydney
Peter Mere: Macquarie University

No 2023-06, Working Papers in Economics & Finance from University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group

Abstract: Cross-product manipulation involves manipulating one financial product to profit from the subsequent reaction in a different but related product. In this paper, we develop a simple model that researchers and regulators can use to scan for the susceptibility of two markets to such misconduct. We also test the model empirically on a set of government bond futures contracts using a complete EUREX ultra-high-frequency dataset. Our findings show that cross-product manipulation is feasible across bond futures with different underlying maturities, issuers and contract expiry dates. The results suggest that cross-product manipulation might be widespread despite an increasing crackdown by regulators and prosecutors.

Keywords: Bond futures; fixed income; cross-product manipulation; cross-market manipulation; limit order book; market microstructure; ramping; related securities; spoofing; trading; trade surveillance (search for similar items in EconPapers)
JEL-codes: D4 F31 G1 (search for similar items in EconPapers)
Pages: 36
Date: 2023-08-24
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