A trading irregularity which constitutes an illegal practice where a group of investors takes an influential long position in futures, and then attempt to control and manipulate the supply of the commodity underlying the futures. As the futures near maturity, the group don’t proceed with closing out the long position on the intention to have the commodity’s amount contracted in the futures exceed the deliverable amount of that commodity, i.e., the aggregate amount available at suppliers’ disposal. As this happens, the holders of short positions realize the shortage and become desperate to settle their positions. This situation results in a sharp increase in both futures prices and spot prices.
Market regulators in their bid to overcome such illegal practices increase margin requirements, impose rigid position limits and ban all sorts of trading that may increase open positions usually maintained by speculators and manipulators. The strictest action that could be taken by a regulator in such cases is to require market participants to finally close out open positions.
Cornering the market is simply known as corner.
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