Reference rates of financial and real assets can be set in a variety of ways. For example, they may be calculated using voluntary versus mandatory trade reports or survey-based versus transaction-based data. Alleged misconduct around benchmarks thus often takes one or both of two forms: (1) manipulation through direct conduct in the relevant markets prior to or during benchmark setting periods; or (2) manipulation through misreporting to price reporting agencies (PRAs) trade prices, volumes, or other market information with the intent to distort the published benchmark.
Our experience includes:
- Evaluating allegations of trading behavior allegedly impacting or attempting to impact prices of different products and contracts at market closing or fixing windows.
- Analyzing detailed trade and order book data from proprietary and nonproprietary systems covering multiple years and spanning multiple trading desks to investigate allegations at issue.
- Reconstructing daily positions, estimating exposure to market price movements, calculating portfolio values, and evaluating risk management metrics.
- Analyzing the instruments’ market structure, market-wide volatility and liquidity conditions, and market trading behavior.
- Assessing trading behavior in the context of intraday hedging, market making, and risk exposure.
- Evaluating economic impact of the alleged conduct on market prices and on other market participants.
In several matters on behalf of global financial institutions, Cornerstone Research has analyzed allegations of front-running large client trades across multiple FX products. We have assessed alleged collusive trading and front-running of client orders before fixing benchmarks, triggering of stop loss orders, the alleged impact on in-the-money or out-of-the money status of vanilla options, the impact on barrier triggers of exotic options, as well as trading and hedging around expiration of binary options and in proximity to barriers. We have also performed qualitative analysis of chat room discussions, audio transcripts, and other communications describing trading activity in the context of traders’ underlying positions and trading behavior.
Interest Rates and Swaps Products
In ISDAFIX investigations, we have analyzed chat room discussions, audio transcripts, and other communications describing trading activity in the context of traders’ underlying positions and behavior. Cornerstone Research has helped clients understand how traders evaluate their risk exposure created by client orders and expiring option positions around benchmark fixing processes as well as the trading strategies traders might employ to hedge these risks.
Cornerstone Research has worked on agricultural commodity matters involving alleged misconduct affecting the publication of agricultural price benchmarks and related futures contracts. In these matters, we analyzed trading data to investigate price impact and materiality.
Cornerstone Research has analyzed misconduct allegations relating to trading in international crude oil, domestic crude oil, natural gas, and gasoline, as well as the potential impacts on petroleum price benchmarks. These cases involved allegations of misconduct by the oil majors’ trades and orders that were incorporated into the assessments conducted by Platts and other PRAs and subsequently into the published benchmarks. In these matters, Cornerstone Research reviewed trading records and market data to assist in developing a response strategy and to evaluate potential claims relating to oil majors’ conduct in the trading markets around benchmark setting periods.