Calling Finance Types

America\’s leading energy regulator has accused a Dutch oil trading firm and three of its employees – including British-born Christopher Dowson – of manipulating the crude oil market for their own ends.

In the first lawsuit of its kind since the agency began investigating alleged manipulation of the market in December 2007, the US Commodities Futures Trading Commission (CFTC) has filed civil actions against Dutch-based Optiver Holdings and the three men, accusing them of making $1m in profit in just 11 days.

The CFTC alleges that the defendants were involved in a scheme known as "banging the close" where a sizeable position is taken in the run-up to a market\’s close, which is then swiftly followed by offsetting that position before the close of trading in an attempt to manipulate prices.

Anyone want to try and explain, so that us non-specialists can understand it, what they are alleged to have done?

Something more sophisticated than pump and dump presumably?

3 thoughts on “Calling Finance Types”

  1. the problem was “making $1m in profit in just 11 days”
    not how it was made

    maybe not, but are we far away from that being the case?

  2. It sounds a lot like they build up a large position in the day whilst liquidity is high. This would not noticably move the price. At the close of trading liquid dries up and large trades are much more likely to move prices. E.g. 100x 100k contracts bought over the day for say $10 each would give you exposure of $100m. As liquidity dries up a further order of 500k right at the close might see the price jump to $11. The price might remain high enough for long enough the next day to ship out the $100m position for $10m profit before falling back to its balanced price of $10

  3. DW’s got it right.

    Interestingly, a number of conspirators were convicted of such price-rigging many years ago on the New Orleans Cotton Exchange. Their purpose, however, was somewhat more refined.

    Rather than trying drive (up or down) the price in order to profit by the differential caused, they were trying to crowd out other activity and, thus, determine the closing price: those numbers were used as the basis for payout on some large national lottery (Spanish, I think I remember.) . In other words, they were trying to effect the equivalent of a “past-post” scam.

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