Financial techniques

The “Financial techniques” category contains posts about asset pricing models (optimal portfolios, derivatives, trading and investment strategies, financial products, data, etc.) used in the financial industry.

AMF

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Autorité des Marchés Financiers (AMF)

Akshit GUPTA

This article written by Akshit GUPTA (ESSEC Business School, Master in Management, 2022) presents the structure and functioning of Autorité des Marchés Financiers (AMF).

Introduction

The Autorité des Marchés Financiers (AMF) is an independent financial institution and administrative authority which possesses regulatory powers over the financial and banking industry in France. It was created under the Financial Security Act of 2003 with the primary purpose of ensuring protection of investors’ interests and smooth operations within the financial markets.

The authority has an independent legal identity and exercises authority, regulations, controls and sanctions over the players in the French financial system. In 2003, the AMF was formed as part of a merger between several financial regulators including Conseil de discipline de la gestion financière (CDGF), Conseil des marchés financiers (CMF) and Commission des Opérations de Bourse (COB).

The AMF is embodied with the primary objective of protecting the investors’ interests and savings in the financial markets along with monitoring and regulating the markets by issuing rules, guidelines, control measures and ensuring transparent flow of information. The authority is also responsible for issuing sanctions and penalties to market players in case any malpractices occur.

Organizational Structure

The Autorité des Marchés Financiers (AMF) primarily consists of 2 bodies namely, Le Collège and a Sanctions commission.

The Collège is headed by the President of the AMF, who is directly nominated by the President for the Republic of France for a non-renewable tenure of five years, along with a team of 16 people appointed directly by the public authorities. The operations and administrative work for the AMF is carried out by the Secretary General who is appointed by the President of the AMF and works under his supervision. The Collège has the powers to open sanctions and injunction proceedings against financial participants. The body is also responsible for defining the job framework, setting the budgets and staff remunerations for the AMF.

The Sanctions commission is an autonomous decision-making body that is responsible for exercising the sanctions on behalf of the AMF. The Commission consists of 12 people who are directly appointed by the public authorities.

The executive committee (Comité exécutif or Comex) is an additional body responsible for presenting proposals for the smooth execution of operational and strategic objectives for the AMF. The body is chaired by the President of the AMF and brings in an additional viewpoint to streamline the processes of the AMF.

Powers and responsibilities

The AMF is responsible for overseeing and regulating the activities in the French financial system and its players including listed companies, credit institutions, investment banks, investment firms and asset managers. It also looks after the financial products offered by the stated players in order to ensure the protection of investors’ interests and rights.

The AMF carries the above stated activities by means of enacting rules and regulations, authorizing products offered by financial players, issuing sanctions, implementing control measures and offering mediation system to ensure the smooth flow of market operations. It has the powers to investigate transactions carried out by any market participants to ensure the compliance of such transactions with the financial regulations of the French financial system.

Sanctions and penalties

The AMF is vested with the powers to issue sanctions and penalties to market professionals who act in contradiction to the rules and regulations of the financial system. The power to issue sanctions by AMF is split between the two primary bodies of the AMF that are the Collège and the Sanctions commission.

If any breach is found to have happened, the Collège is vested with the powers to decide upon the initiation of legal proceedings. If the Collège agrees upon initiating the legal proceedings, the Sanctions commission is responsible for deciding the quantum and degree of the sanctions to be inflicted upon the suspected individual/individuals.

The kind of malpractices that can take place in the financial system involves insider trading, stock price manipulations, circulation of false information, etc. which can affect the investors and possess a threat to their investments or financial safety.

The AMF can issue injunctions and individual sanctions to financial professionals (including individuals or firms) depending on the nature and magnitude of the breach that took place.

The Sanctions commission has the power to issue disciplinary sanctions which involve ban on practicing or reprimands and financial penalties amounting to 100 million euros or 10 times the amount of profits made by any individual or organization. The degree of such penalties depends upon the magnitude of the financial crimes involved and the advantages or benefits gained by the suspects.

Relevance to the SimTrade Certificate

The activities of the AMF relate to many topics covered in the SimTrade certificate:

  • The different players supervised by the AMF (listed companies which issued stocks then traded on an exchange, investment services providers such as brokers which provide access to the market, asset management companies which buy and sell securities on the market) are the participants to the market introduced in Period 1 of the SimTrade certificate.
  • Insider trading and market manipulations are linked to the concept of market efficiency introduced in Period 2 of the SimTrade certificate. These illegal activities have an impact on market prices.
  • Short selling is introduced in Period 3 of the SimTrade certificate. Short selling allows to speculate on the market by making a profit when the stock price decrease.

Related posts on the SimTrade blog

   ▶ Akshit GUPTA Securities and Exchange Commission

Useful resources

Autorité des Marchés Financiers (AMF)

Autorité des Marchés Financiers (AMF) Impose Sanctions

About the author

The article was written in January 2021 by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

Corner

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Corner

Akshit GUPTA

This article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) presents the technique of Cornering, which is a type of market manipulation in financial markets.

Introduction

Cornering a market refers to the acquisition of a significant amount of an asset which gives the manipulator a controlling interest in the market. This strategy is used to manipulate the market for the asset and the manipulator has the power to move the asset price in his/her favor. Cornering has been observed in the financial markets since a long time and strong regulations and rules have been put into place by regulators worldwide to prevent such activities to happen. In the United States, the Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC) supervise the trading activities in the financial markets to catch the manipulators who indulge in such practices. While cornering can be considered as legal or illegal depending on the circumstances and the intention of the individual involved, most of the times it is done to deceit the honest investors and earn illegal profits.

In cornering, the manipulator acquires a controlling stake in the asset and pushes up the prices for the underlying asset. Once the prices have reached a significant level, the manipulator exits his/her position leading to market correction and a sharp fall in the asset prices.

Short squeeze

Short squeeze is a market situation where a mismatch of demand and supply (high demand and low supply) of an asset results in the asset price to rise significantly. In generally seen instances, when the share price of a company starts rising, short sellers rush to cover their positions to meet the margin requirements and avoid more losses. The sudden increase in demand is mismatched with the market supply, driving the asset price upwards in a frenzy manner.

Practices used to corner the market

Beyond the accumulation of assets in his/her position, the manipulator usually uses many practices to manipulate the price up or down in his/her favor. The most common practices used are the pump and dump scheme and the poop and scoop scheme detailed below.

Pump and dump scheme

In the pump and dump scheme, the manipulator circulates false positive information about a particular asset which leads to an increase interest amongst the investors for the particular asset and leads to more demand. As the demand for the asset rises, the prices also go up and the manipulator exits his/her position, thereby generating high profits and crashing the market for the asset. Such schemes are generally carried on lesser-known assets which have an information asymmetry, and the manipulator has the means to manipulate the market.

Poop and scoop scheme

In the poop and scoop scheme, the manipulator circulates false negative information about an asset in the market. Hearing the negative information, other investors undertake panic selling, thereby decreasing the prices for the asset. The manipulator buys the asset once the prices fall and manipulates the market.

Silver Thursday (1980)

Silver prices

The manipulators who practice cornering in a market, hoard large quantities of a security in the initial accumulation phase. As seen in the graph above, in the silver market cornering that started in the 1970s, the Hunt Brothers bought large quantities of silver over a period of 10 years in an attempt to corner the silver market. They were holding approximately one third of the world’s deliverable silver supply. The price of silver went up drastically over this period. But as their practices came to be noticed, the regulatory bodies in the United States amended the rules and regulations regarding commodity trading, bringing an end to their manipulation practice. Then the silver market crashed on March 27, 1980, a day known as ‘Silver Thursday’.

‘Silver Thursday’ is infamous for recording one of the highest falls in the market price of silver. In the months preceding the Silver Thursday, the U.S. Federal Reserve brought in new regulations restricting banks to issue loans for commodity speculations. At the same time, the Chicago Board of Trade (CBOT) increased the margin requirements on silver futures contracts, leading to high margin calls for the Hunt Brothers. Due to lack of access to new leverage, they were unable to meet the margin requirements for the silver contracts they held. The new regulations led to the failure of the attempt made by the Hunt Brothers to corner the silver market. As soon as the news hit the market, investors starting panicking leading to a sharp selling of the silver futures contracts. This ultimately led to a fall in the silver price from around $50 per ounce to $11 per ounce over a short span of time. Hunt Brothers were charged with civil charges for manipulating the silver market over the years and artificially increasing the silver price. Due to the new regulations and stricter laws, they also had to pay heavy fines amounting to millions of dollars which led to their bankruptcy.

Conclusion

Illegal cornering has been regarding as a common market manipulation practice throughout the world and the regulators keep a tight watch to control such practices from occurring. Although many attempts of cornering the financial markets have been made by several manipulators in the past, most of them have been unsuccessful. The manipulators also take huge risks while trying to corner the market as the irregular market patterns can be observed by professional investors. The inefficiencies seen in markets manipulated through cornering can prompt other investors to take opposing positions leading to heavy losses to the manipulators.

Relevance to the SimTrade Certificate

The concept of cornering relates to the SimTrade Certificate in the following ways:

About theory

  • By taking the Trade orders course, you will know more about the different type of orders that you can use to buy and sell assets in financial markets.
  • By taking the Market information course, you will understand how information is incorporated into market prices and the associated concept of market efficiency.

Take SimTrade courses

About practice

  • By launching the Send an Order simulation, you will practice how financial markets really work and how to act in the market by sending orders.
  • By launching the Efficient market simulation, you will practice how information is incorporated into market prices through the trading of market participants, and grasp the concept of market efficiency.

Take SimTrade courses

Related posts on the SimTrade blog

Market manipulation

Corner of Volkswagen

Trading places: A Corner in the Orang Futures Market

About the author

Article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Nouvelle version de SimTrade avec facilitation du passage d'ordres

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Une nouvelle version de la plateforme de trading SimTrade (version 1.7) a été mise en ligne le 21 février 2013.

Facilitation du passage d’ordres

Suite à des remarques de SimTraders avertis, le passage d’un ordre sur le marché se fait maintenant à l’aide de deux boutons “Acheter” et “Vendre” (le sens de l’ordre était auparavant défini comme un paramètre de l’ordre). Le passage d’un ordre est donc plus rapide et plus sûr (il n’y a plus à choisir le sens de l’ordre puis à valider l’ordre).

Amélioration de la simulation Pour l’amour du blé

La simulation du concours de SimTrading actuel Pour l’amour du blé présente de l’aléa sur l’aléa. En d’autres termes, à chaque lancement de la simulation, même sans l’intervention du SimTrader, le marché ne se reproduit pas à l’identique.

Nouvelle version de SimTrade avec catalogue et annulation des ordres

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Une nouvelle version de l’application SimTrade (version 1.3) a été mise en ligne le 6 décembre 2012.

Le catalogue : un nouveau moyen pour sélectionner une simulation

Le site SimTrade vient de s’enrichir d’une nouvelle partie : le catalogue des simulations. En accès libre, le catalogue permet de découvrir les simulations disponibles sur SimTrade.

Avec l’augmentation constante du nombre de simulations, il était nécessaire d’organiser les choses. Le catalogue permet de sélectionner une simulation facilement selon différents critères.

Annulation d’ordre

Réclamée par de nombreux SimTraders (adi90, GapTrade, lulu75, etc.), cette nouvelle version propose maintenant la fonctionnalité d’annuler des ordres pendant la simulation.

Qui n’a pas passé un ordre à cours limité à l’achat pour profiter d’une baisse du prix de l’action mais qui a vu le prix s’envoler et ne jamais toucher la limite de prix… Suite à une hausse du prix de l’action, il y a peu de chance que l’ordre d’achat avec une limite de prix devenue trop basse soit exécuté. En d’autres termes, cet ordre ne sert plus à rien… mais continue à immobiliser du cash pour un ordre d’achat et des titres pour un ordre de vente. La fonctionnalité d’annulation d’ordre permet d’annuler l’ordre (pour la quantité de titres non encore exécutés) et donc de libérer du cash suite à l’annulation d’un ordre d’achat et des titres suite à l’annulation d’un ordre de vente.

L’annulation d’ordres fait partie intégrante de toute stratégie de trading dynamique.

Vous pouvez nous contacter pour nous faire part de vos commentaires.

Nouvelle version de SimTrade avec traçabilté des ordres

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Une nouvelle version de l’application SimTrade (version 0.9.7.0) a été mise en ligne le 18 septembre 2012.

Nouveautés pédagogiques

Rappelons que l’objectif de SimTrade est pédagogique : faire comprendre le fonctionnement des marchés financiers et apprendre à intervenir sur les marchés.

Au niveau pédagogique, la nouvelle version apporte la traçabilité des ordres de l’internaute-trader (le SimTrader). Dans la page “Trading” de la simulation, les ordres du SimTrader apparaissent maintenant en bleu et en gras dans le bloc “Carnet d’ordres” (il s’agit des ordres à cours limité du SimTrader, qui n’ont pas encore été exécutés). De même, les transactions du SimTrader, suite à l’exécution des ordres qu’il a passé sur le marché, apparaissent en bleu et en gras dans le bloc “Dernières transactions” ainsi que dans la fenêtre “Historique” qui reprend toutes les transactions de la journée de trading.

Ce nouveau développement permet de tracer les ordres et les transactions du SimTrader et donc de mieux comprendre l’impact du SimTrader sur le marché.

Vous pouvez nous contacter pour nous faire part de vos commentaires.