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Banging the close

Trading aggressively into the settlement window to push the official settlement price in a direction that benefits a position priced off it. A prosecutable form of manipulation.

The motive is that settlements price far more than the futures themselves: trade-at-settlement orders, swaps, physical contracts indexed to the futures settlement, and fund net asset values. Moving the settlement by a tick can be worth far more than the loss on the trades used to move it.

Regulators treat intent as the dividing line. Legitimate traders do execute at the close; what is charged is trading designed to distort the reference price rather than to acquire a position. The CFTC has brought numerous cases, and closing-range methodology exists partly to raise the cost of doing it.

Example: a firm holds swaps that pay off on the settlement of 5,000 contracts' worth of exposure. Spending $200,000 pushing the settlement one tick higher is profitable if the tick is worth $12.50 x 5,000 = $62,500 across a multi-day position — and is exactly the fact pattern enforcement looks for.

Related: closing-range, settlement-price, trade-at-settlement, market-manipulation, spoofing

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

A range beside a trendOne chart swinging between a flat floor and ceiling, another stepping upwards inside a pair of sloping lines.Range-boundresistancesupportprice bounces between two levelsTrendingthe trend channelhigher highs and higher lowsA range has two flat edges; a trend has two sloping ones.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.

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