Finance and Accounting

 1
Finance and Accounting 
2
Abstract
This paper focuses on the market manipulation and its impact on the future trades. A brief idea
about the commodity market has been provided in the report. Based on this discussion, it has
been found that in spite of the rigid regulatory framework, market manipulation has been
affecting the competitive scenario of the business. 
3
Introduction
Market manipulation is quite a controversial topic in all the commodity markets specially the
futures market. The commodity futures market has been facing the market manipulation from
decades. It has threatened the economy continuously and all the efforts to stop the manipulation
have failed. Many have commented that redefining manipulation will be the ultimate solution for
the issue. However, Jerry Markham had argued that by redefining manipulation will be
ineffective for the situations and it will increase the cost. The effort will be again futile as before.
He exclaimed that the Commodity Futures Trading Commission (CFTC) should be more active
and empowered for adapting affirmative regulations apart from doing their predefined activities.
The regulations will maintain an orderly and fair market. Thus, the CFTC will be requiring more
resources than before. Markham has argued that these will reduce market manipulation and the
additional cost will have limited effect on the total manipulation. The paper elaborates the effects
of manipulation on commodity futures markets and also lays emphasis on its potential to cope up
with the manipulation level. The paper also highlights on the trading behaviour of the major
participants of the market like the customers and dealers. The elaboration of the topic is based on
the futures trades that are reported to the governmental regulators by the various dealers and
exchanges. The response of the prices is selective to the trading actions of the group which is
selected as the market participants which are relevant at the time (Attari, Antonio and Martin,
2005).
Commodity futures market
The growth of the future market in the past thirty years has been explosive. The volume of future
trading was about 3.9 million in 1960. The volume of contracts increased with the time which 
4
was due to the modifications and changes in the monetary policy. Inflation during 1960 and
1970s had also created dramatic impact on the commodity prices and thus there is huge
development in the financial future contracts. The trading in the futures market has outstripped
the trading in agricultural commodity future market (Pirrong, 2010).
Along with the increasing trading volume in commodity future market, many issues were raised
against the trading system. The commodity futures market in United States have developed to a
great extent in the past but at the end of the Civil War the contracts for the delivery of grains
were switched into convertible contracts that were often used for offsetting each other. Thus, the
speculators got the opportunity to undertake manipulative activities (Agarwal and Narayan,
2002). The scope for manipulation became wide spread with time and the plays of the
speculators gained popularity. There were efforts in the 1880 to control these activities but all
were futile due to the degree of manipulation. There were measures to prevent the cornering of
the market. The CFTC were incapable of preventative the manipulative actions in the market and
thus many considered to redefine manipulation so that the effects of the same will have positive
impact on the trading system. However, the concept of redefining was not accepted by Jerry
Markham who said that it would not increase the cost for the government and will have minute
effect on the trading system. Thus, he recommended that particulars regulations should be made
to control the actions.
Manipulation of commodities futures markets
History has encountered the speculators engaging in manipulative actions but corporations and
individuals had also attempted to undertake manipulating actions for the securities market. These
helped them to generate private returns from the exercising market power and the acquiring 
5
market. The major manipulations have occurred in the bond market as well as in the commodity
futures. The manipulative actions are through grabbing the market price which was prominent in
United States and United Kingdom (Collins, 2000).
The manipulative delivery has squeezed the futures market by manipulating the future long
position in the bond market. The squeezed delivery attempted on making profit by providing
restrictions on the supply of the cheapest deliverable issues. The actions however increased the
price of original cheap delivery issue price and this forced the holders of futures contract to
deliver the most highly valued issues or even they can buy the futures contract at the inflated
prices. The participants of the futures market and futures exchanges are all respo