Market integrity issues in financial markets

Abstract

This dissertation investigates market integrity issues across a range of financial markets. The essays investigate the leakage of information, information asymmetry, market manipulation, and off-market trading across the carbon, equity, and option markets. The study spans across the European Union Emissions Allowances (EUA) futures market, the Australian Securities Exchange (ASX) equity market, and the Australian Securities Exchange (ASX) option market (AOM). The first essay examines the impact of European Union emissions trading scheme (EU ETS) national allocation plan (NAP) announcements on carbon markets. The findings show that Phase II announcements have an influence on both Phase I & II front futures and sole Phase II futures carbon returns. In addition, the results indicate that the announcements have no significant impact on volatility. Together, the findings suggest a systematic leakage of information across all types of announcements. The second essay examines trade cancellations on the Australian Securities Exchange (ASX). Trade cancellations are trades that are determined to have been made in error by both parties, and are subsequently cancelled. Results indicate return reversal patterns consistent with manipulative activity following the initial trades. Findings on volume, return, and volatility around the trades are also consistent with the empirical findings on market manipulation in the literature. The final essay examines the impact of large off-market option trades on the Australian Options Market (AOM). The results reveal that large off-market option trades receive price improvement when compared to the quoted prices at the time of the trade. Further, although large off-market trades experience some temporary price effects there is no evidence of significant leakage or permanent price effects. Finally, cumulative abnormal returns in the days surrounding the trades reveal no significant price patterns.