A person is a CFA charterholder and he runs a macro strategy hedge fund. This hedge fund has a short position in July osmium futures. This person attempts to gain control of the available supply of osmium that can de delivered in July, which will cause holders of the long July futures to make offsetting trades instead of settling by delivery. The question is has this person violated she standard concerning market manipulation?
The answer is yes he violated the standard. But I don’t catch it. To me, it would seem some normal strategy cuz I don’t understand how he manipulates the price of the derivative through this action. Can someone explain to me the logic behind this?
If in the exam there is the question, which involves some strategy that seems incomprehensible to me, I wouldn’t be able to judge if it is just a normal and acceptable strategy like short-selling, or indeed a market manipulation…
Unless he has a business reason to gain control of the available supply of osmium that can be delivered in July – for example, he’s in the compact paperweight business – then his action is clearly designed for no purpose other than to influence the market price. That’s manipulation. If there’s a legitimate business reason to corner osmium, then his action is OK.
