Market Abuse “Marking the close”

“Marking the close” definition

“Marking the close” is a market abuse practice that involves manipulating the closing price of a security or financial asset to make a profit or avoid a loss. This practice typically involves executing large trades in a security just before the market close in order to drive the closing price up or down.

Price manipulation

Price manipulation can take many forms, such as buying or selling a large amount of a security just before the market close, or submitting false orders to influence the closing price. Marking the close can also be done in collaboration with other traders or using inside information.

Marking the close is considered a violation of market rules and is generally illegal. Financial regulators have surveillance measures in place to detect and punish market abuse, including marking the close. Traders who are caught engaging in marking the close may be subject to financial penalties, criminal prosecution, or imprisonment.

Marking the Close Case Study: The London Whale

The “London Whale” affair was a market manipulation scandal that broke in 2012 and involved the American bank JPMorgan Chase, one of the world’s largest financial institutions. The nickname “London Whale” was given to Bruno Iksil, a French trader working in JPMorgan’s Chief Investment Office (CIO) division in London.

Iksil was responsible for managing market risks associated with credit derivatives, complex financial instruments linked to interest rate movements and credit fluctuations. Over time, Iksil took massive positions in these credit derivatives, creating an extremely large and increasingly risky position.

To hide the extent of their positions and avoid surfacing in financial reports, Iksil and his team reportedly used various strategies, some of which resembled market manipulation. They allegedly executed large trades just before the market close in the potential effort to manipulate closing prices and thus influence the valuation of their positions.