A Commentary on Market Abuse During the Financial Meltdown

6 min readMar 20, 2020

US equity profits since Trump’s reign began have been wiped out in a few weeks. Still, fueled by despicable greed, we are witnessing financial market manipulations on a scale and frequency that have never been seen before. The lack of integrity by a few powerful banker and asset managers is causing a major financial market melt-down from which the current form of our global economy may never recover.

Notes: The Market Abuse Directive (MAD) of the EU is not enforced on the US. Instead, oversight of the tactics deployed to move asset prices by manipulating financial derivatives is the responsibility of the Commodity and Futures Trading Commission (CFTC). To be as “MAD as a March hare” is an English idiom derived from the observed antics during the March breeding season of the Lepus Europaeus. March Madness is an allusion that can refer to any other similarly excitable and unpredictable manner of behaviour.

As Spring emerges on the northern hemisphere, an epidemic of misconduct has developed in financial markets. Under the various international laws about market abuse,[1] surveillance teams in trading companies all over the world should be reporting the more obvious manipulative trades to those responsible for particular markets. For the CME COMEX futures, that is the CFTC.

But regulators have insufficient firepower to stop the corrupt few using this massive melt-down as an excuse to get up to their old tricks. In some markets like crypt, almost all trades are on unregulated derivatives exchanges so there is nothing to stop prices being driven to zero so that there is no safe haven anymore (see our article on this). The only investments that hold their value against this tirade of abuse are dollar assets.

The CryptoMarketRisk team have been recording some of these trades, focusing on the two most obvious markets that are being manipulated, gold and bitcoin. For in-depth commentaries on how this is done see here, here, here, here, here and here.

This article summarizes a week-by-week commentary of some of the more obvious and/or bizarre events:

Week 1 (19 to 23 Feb)

The S&P 500 started with a moderate decline, and gold immediately picked up, gaining 4% as equities fell 4.5% in the same period. Of course. Gold is a safe-haven asset, isn’t it?
Bitcoin fell almost 20% in the same period. While Asian traders slept, at 21:42 UTC on 19 February a tsunami of selling pressure hit the BitMEX perpetual — a leader in bitcoin price discovery[2] and the spot price plummeted while Deribit option market makers stopped offering long traders the insurance of out-of-the-money puts. But bitcoin is always doing its own thing, right?

Week 2 (24 Feb to 1 March)

It’s official. The worst week for global stocks since 2008. By the end of this week the S&P 500 is down 12%. Equity funds start panicking. Where are they going to get their return now?
Just as US markets open on Friday 28 February massive sell orders worth a combined total of approximately $3 billion hit the April and June COMEX gold futures contracts; at 12:30 GMT (13,000 contracts) and at 13:44 GMT (18,000 contracts), when the usual order size for gold futures is around 15 contracts at the very most. Not surprising then that gold fell by 6%.
Bitcoin is down only 9%, which is not massive for bitcoin.

Week 3 (2 to 8 March)

On Monday 2 March the S&P 500 recovered briefly while gold and bitcoin moved sideways. Everyone is waiting for the Federal Reserve’s response to last week’s events. What does the good old US of A need to save its day? Yup, another round of quantitative easing. In the past, selling another batch of long-dated Treasury bonds (mainly to foreign investors [3]) has always bolstered the dollar and given the Fed and the banks enough cash to put back the buying pressure on US stocks.
On 3 March the Fed announces the interest rate cut that will send the price of US Treasuries to sufficiently high levels to attract foreigners to fuel the ever-rising US debt — they hope.
On the same day, G7 finance ministers and central bankers have a teleconference to discuss how to limit the impact of the COVID-19 pandemic on the global economy.
Then the S&P 500 blasts through its previous short-term support levels of 3,000 and 2,950 points, closing the week down another 5.25% loss.
On the same day, there is a massive buy-back in the April and June gold futures contracts, this time an order for 10,000 contracts in one trade, at 15:01 GMT (so again just as US markets open).

On Friday 8 March the COMEX copper futures May — July spread is driven up and then down, a sort of pump and dump on steroids, just for about 5 minutes before settlement time. Probably, this wasn’t the only massive market manipulation that Friday afternoon. [comments welcome!]

Week 4 (9 to 15 March)

The S&P 500 moves sideways on 9 and 10 March, gold and bitcoin drop 0.6% and 13% respectively. On 9 March, our OTM put-call ratios [link to Watch Out article] for Deribit bitcoin options stayed well below 1. This means that informed bitcoin traders are still anticipating sharp price declines. But our bitcoin VIX indices are unphased, staying at their recent levels around 60%.
Then on 11 and 12 March the S&P 500 crashes to new lows (just below 2,500 points) with a loss of 8.75%. On 11 March gold and bitcoin drop 1.5% and 5%, but on 12 March the Fed’s takes action and the great gold sell-off begins with gold losing 4%. On 11 March (very late after midnight GMT) and on 12 March (in the early hours of the morning GMT) there is huge selling pressure on the BitMEX perpetual with several spoofing orders (each with the BitMEX maximum size of $10 million) deep in the sell side of the order book are trying to drive bitcoin’s price down. And a little later (at 10:37 GMT) unusually high volumes on the Huobi quarterly futures ($120 million traded in one minute) and the BitMEX perpetual ($80 million traded in one minute) accompany a 25% fall in bitcoin prices.
On Friday 13 the S&P 500 finally makes back some gains but still closes with a 3.2% loss since the beginning of the week. Gold and bitcoin lose another 2% and 11%. By 13 March our bitcoin VIX indices have reached all-time highs. The very short-term bitcoin VIX jumps to 200%.

Week 5 (16 to 20 March)

The Fed announces a $700 billion repo operation on Sunday evening (15 March) but this does not calm the markets. Reasons why are explained in our article. The week started with the worst drop for US equities since 1987, triggering another circuit breaker on NYSE and a fall in major US stock indices of more than 12% by the end of Monday. On the same day the S&P 500 VIX index reached an all-time high of 84%. Bitcoin took another dip below $5,000 but closed the day with gains.
On Tuesday central banks and governments come up with even more stimulus: Donald Trump is pushing for an aid package of at least $3 trillion and central banks around the world are slashing interest rates. US markets rebounded by the end of Tuesday, closing up more than 5%. There were also stock gains in Europe since France, Belgium, Italy and Spain banned short-selling following Monday’s market plunge.
On Wednesday fresh fears of an economic slow-down triggered another circuit breaker on the NYSE and more than 6% drop for Wall Street’s main indices by the end of the day. The rush to liquidity caused by the repo sent the US dollar higher for the third consecutive day (the dollar index increased more than 5% during the week). Gold again failed to provide security for investors seeking a safe haven, going down together with the broader market on Monday and Wednesday. The S&P 500 VIX index hit yet another record, closing at 85.18%.
On Thursday morning the ECB announced a €750 billion bond-buying program, which is followed by a volatile day on stock markets. However, the main equity indices managed to hold their ground and even managed some small gains by the end of the day. Gold also went up together with the stock markets, but only by 0.09%.
Finally, Bitcoin continued on its rally today (Friday), having gained 30% since Monday. Markets in Europe also opened higher and US stock futures are showing some gains.

Carol Alexander, Michael Dakos, Daniel Heck, Arben Imeraj, Artur Lindmaa

@ CryptoMarketRisk, QFIN, University of Sussex

[1] Such as the EU’s Market Abuse Directive (MAD) https://www.handbook.fca.org.uk/handbook/MAR/1/6.html?date=2016-03-07 Apt acronym!

[2] Alexander, C., Choi, J., Park, H. and Sohn, S., 2020. BitMEX bitcoin derivatives: Price discovery, informational efficiency, and hedging effectiveness. Journal of Futures Markets, 40(1), pp.23–43 https://onlinelibrary.wiley.com/doi/abs/10.1002/fut.22050

[3] https://www.marketwatch.com/story/heres-who-owns-a-record-2121-trillion-of-us-debt-2018-08-21