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.
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 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.