Cross-Market Manipulation on Derivative Market Expiration Dates.

This article examines cross-market manipulation strategies used by institutional investors in the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) futures and options markets. Analyzing both derivatives and the underlying market, we find that when manipulators maintain an overall bullish (bearish) delta position on options and futures, they execute purchases (sales) of the underlying TAIEX constituent stocks and the top 10 capitalization stocks during the price determination interval on the derivative expiration date. The potential foreign institutional manipulators wield the most market power in the underlying and gain the greatest incremental value from derivative contracts. Furthermore, even after the settlement rule change in December 2008, the results remain consistent. This article provides regulatory insights for detecting potential market misconduct. [ABSTRACT FROM AUTHOR]