Index Manipulation, the CFTC, and the Inanity of DiPlacido

Abstract

Commodity markets are designed to enhance the flow of commoditiesand reduce risks for both buyers and sellers. Unfortunately, these marketscan be open to market manipulation, with economic actors functioning todistort markets and gain profits from engaging in activities that distortprices. This issue has increased in prominence over the last several yearsdue to concerns about the manipulation of various energy markets. The nature of market manipulation, the role of the primary enforcer ofsuch rules -- the Commodity Futures Trading Commission (CFTC), and itsrecent decision in DiPlacido are reviewed in this paper. The CFTC decision demonstrates its deficient understanding of both manipulationlaw and the actual workings of commodity markets. In particular, the CFTC appears to have no ability to discern the difference between procompetitivetrading according to supply-and-demand forces, and themarket manipulation that destroys markets. This raises significantquestions about whether the CFTC, the designated expert agency in thisarea, can be trusted to protect commodity markets from manipulation.