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The effect of settlement rules on the incentive to Bang the Close

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  • Esen Onur
  • David Reiffen

Abstract

Closing prices on financial exchanges are often used as reference prices in other contracts. As such, the robustness of the process determining closing prices is an important feature of exchanges. This paper examines whether the 2012 change in the Chicago Board of Trade's (CBT) closing price procedure made reference prices more robust, especially regarding potential manipulation. We propose a theoretical model exploring incentives to manipulate reference prices under two alternative closing price regimes. We test several predictions of the model using a proprietary data set comprised of individual transactions in CBT corn futures, and find empirical support for these predictions.

Suggested Citation

  • Esen Onur & David Reiffen, 2018. "The effect of settlement rules on the incentive to Bang the Close," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(8), pages 841-864, August.
  • Handle: RePEc:wly:jfutmk:v:38:y:2018:i:8:p:841-864
    DOI: 10.1002/fut.21915
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    References listed on IDEAS

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    Cited by:

    1. Carol Osler & Alasdair Turnbull, 2016. "Dealer Trading at the Fix," Working Papers 101R, Brandeis University, Department of Economics and International Businesss School, revised Jun 2017.

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