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Financial intermediaries in the midst of market manipulation: Did they protect the fool or help the knave?

Vladimir Atanasov, Ryan Davies and John J. Merrick

Journal of Corporate Finance, 2015, vol. 34, issue C, 210-234

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; Floor trading (search for similar items in EconPapers)
JEL-codes: G14 G18 K22 K42 L4 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.jcorpfin.2015.07.011

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