Derivative payout manipulation

Definition

  • trading in a manner to trigger or defend barrier options within the firm, in order to benefit the firm

  • trading in a manner to influence the settlement of a derivative contract at expiry

Surveillance

Effective implementation of surveillance alerts for derivative payout manipulation requires capturing the following trade data:

  • trade and position

  • volume

  • intra-day market risk relevant to derivatives sensitive to manipulation

Context

The FED FX orders identified instances of possible attempts at triggering or defending FX options. Another case in the UK relates to gold fixing and it was investigated by the FCA.

Risk taxonomy

Regulatory source

FED cease and desist order