Cornering the market - Wikipedia

In finance, cornering the market consists of obtaining sufficient control of a particular stock, commodity, or other asset in an attempt to manipulate the ... Corneringthemarket FromWikipedia,thefreeencyclopedia Jumptonavigation Jumptosearch Commercephenomenon FollowinganattemptatcorneringthesilvermarketbytheHuntbrothersin1980,goldandsilverpricesbrieflyspikedinaneventreferredtoasSilverThursday. Infinance,corneringthemarketconsistsofobtainingsufficientcontrolofaparticularstock,commodity,orotherassetinanattempttomanipulatethemarketprice.Onedefinitionofcorneringamarketis"havingthegreatestmarketshareinaparticularindustrywithouthavingamonopoly". Companiesthathavecorneredtheirmarketshaveusuallydonesoinanattempttogaingreaterleewayintheirdecisions;forexample,theymaydesiretochargehigherpricesfortheirproductswithoutfearsoflosingtoomuchbusiness.Thecornererhopestogaincontrolofenoughofthesupplyofthecommoditytobeabletosetthepriceforit. Contents 1Strategyandrisks 2Historicalexamples 2.1ThalesofMiletus(c.6thcenturyBC) 2.219thcentury:ClassicexamplesbyEdwinLefèvre 2.2.1JamesFisk,JayGouldandtheBlackFriday(1869) 2.2.2Lefèvrethoughtsoncornersoftheolddays 2.320thcentury:TheNorthernPacificRailway 2.41920s:TheStutzMotorCompany 2.51950s:Theonionmarket 2.61970s:TheHuntbrothersandthesilvermarket 2.71990s:Hamanakaandthecoppermarket 2.82008:PorscheandsharesinVolkswagen 2.92010:ArmajaroandtheEuropeancocoamarket 3References Strategyandrisks[edit] Corneringamarketcanbeattemptedthroughseveralmechanisms.Themostdirectstrategyistobuyalargepercentageoftheavailablecommodityofferedforsaleinsomespotmarketandhoardit.Withtheadventoffuturestrading,acornerermaybuyalargenumberoffuturescontractsonacommodityandthensellthemataprofitafterinflatingtheprice. Althoughtherehavebeenmanyattemptstocornermarketsbymassivepurchasesineverythingfromtintocattle,todateveryfewoftheseattemptshaveeversucceeded;instead,mostoftheseattemptedcornershavetendedtobreakthemselvesspontaneously.Indeed,aslongagoas1923,EdwinLefèvrewrote,"veryfewofthegreatcornerswereprofitabletotheengineersofthem."[1] Acompanyattemptingtocorneramarketisvulnerableduetothesizeofitsposition,whichmakesithighlysusceptibletomarketrisk.Byitsnature,corneringamarketrequiresacompanytopurchasecommoditiesortheirderivativesatartificialprices;thiseffectivelycreatesasituationwhereotherinvestorsattempttoprofitoffofthesemachinationsthrougharbitrage.Thishasachillingeffectonthecorneringattempt,sincetheseinvestorsusuallytakepositionsopposedtothecornerer.Furthermore,ifthepricestartstomoveagainstthecornerer,anyattemptbythecornerertosellwouldlikelycausethepricetodropsubstantially,subjectingthecornerertocatastrophicrisk. Innearlyallcases,thecompanysimplyrunsoutofmoneyanddisbandsbeforegettingclosetocontrollingprices.Inthefewcaseswherecompanieshavepurchasedadominantpositioninamarket,governmentsandexchangeshaveintervened.Corneringamarketisoftenconsideredunethicalbythegeneralpublicandhashighlyundesirableeffectsontheeconomy.[2] Historicalexamples[edit] ThalesofMiletus(c.6thcenturyBC)[edit] AccordingtoAristotleinThePolitics(BookISection1259a),[3]ThalesofMiletusoncecorneredthemarketinolive-oilpresses: Thales,sothestorygoes,becauseofhispovertywastauntedwiththeuselessnessofphilosophy;butfromhisknowledgeofastronomyhehadobservedwhileitwasstillwinterthattherewasgoingtobealargecropofolives,soheraisedasmallsumofmoneyandpaidrounddepositsforthewholeoftheolive-pressesinMiletusandChios,whichhehiredatalowrentasnobodywasrunninghimup;andwhentheseasonarrived,therewasasuddendemandforanumberofpressesatthesametime,andbylettingthemoutonwhattermshelikedherealizedalargesumofmoney,soprovingthatitiseasyforphilosopherstoberichiftheychoose. 19thcentury:ClassicexamplesbyEdwinLefèvre[edit] JournalistEdwinLefèvrelistsseveralexamplesofcornersfromthemid-19thcentury.Hedistinguishescornersastheresultofmanipulationsfromcornersastheresultofcompetitivebuying. JamesFisk,JayGouldandtheBlackFriday(1869)[edit] The1869BlackFridayfinancialpanicintheUnitedStateswascausedbytheeffortsofJayGouldandJamesFisktocornerthegoldmarketontheNewYorkGoldExchange.Whenthegovernmentgoldhitthemarket,thepremiumplummetedwithinminutesandmanyinvestorswereruined.FiskandGouldescapedsignificantfinancialharm. Lefèvrethoughtsoncornersoftheolddays[edit] Inchapter19ofhisbook,EdwinLefèvretriestosummarizetherationaleforthecornersofthe19thcentury. Awiseoldbrokertoldmethatallthebigoperatorsofthe60sand70shadoneambition,andthatwastoworkacorner.Inmanycasesthiswastheoffspringofvanity;inothers,ofthedesireforrevenge.[...]Itwasmorethantheprospectivemoneyprofitthatpromptedtheengineersofcornerstodotheirdamnedest.Itwasthevanitycomplexassertingitselfamongcold-bloodestoperators. 20thcentury:TheNorthernPacificRailway[edit] ThecornerofTheNorthernPacificRailwayonMay9,1901,isawelldocumentedcaseofcompetitivebuying,resultinginapanic.The2009AnnotatedEditionofReminiscencesofaStockOperatorcontainsLefèvre'soriginalaccountinchapter3aswellasmodernannotationsexplainingtheactuallocationsandpersonalitiesonthepagemargins. 1920s:TheStutzMotorCompany[edit] Called"aforerunneroftheLivermoreandCuttenoperationsofafewyearslater"byhistorianRobertSobel,[citationneeded]theMarch1920cornerofTheStutzMotorCompanyisanexampleofamanipulatedcornerruiningeveryoneinvolved,especiallyitsoriginatorAllanRyan.[4] 1950s:Theonionmarket[edit] Inthelate1950s,UnitedStatesonionfarmersallegedthatSamSeigelandVincentKosuga,ChicagoMercantileExchangetraders,wereattemptingtocornerthemarketononions.TheircomplaintsresultedinthepassageoftheOnionFuturesAct,whichbannedtradinginonionfuturesintheUnitedStatesandremainsineffectasof2022[update].[5] 1970s:TheHuntbrothersandthesilvermarket[edit] BrothersNelsonBunkerHuntandWilliamHerbertHuntattemptedtocornertheworldsilvermarketsinthelate1970sandearly1980s,atonestageholdingtherightstomorethanhalfoftheworld'sdeliverablesilver.[6]DuringtheHunts'accumulationofthepreciousmetal,silverpricesrosefrom$11anounceinSeptember1979tonearly$50anounceinJanuary1980.[7]Silverpricesultimatelycollapsedtobelow$11anouncetwomonthslater,[7]muchofthefalloccurringonasingledaynowknownasSilverThursday,duetochangesmadetoexchangerulesregardingthepurchaseofcommoditiesonmargin.[8] 1990s:Hamanakaandthecoppermarket[edit] Furtherinformation:Sumitomocopperaffair RoguetraderYasuoHamanaka,SumitomoCorporation'schiefcoppertrader,attemptedtocornertheinternationalcoppermarketoveraten-yearperiodleadingupto1996.[9]Ashisschemecollapsed,Sumitomowasleftwithlargepositionsinthecoppermarket,ultimatelylosingUS$2.6billion.[10]HamanakaconfessedinJune1996,andpleadedguiltytocriminalchargesstemmingfromhistradingactivityin1997.ATokyocourtsentencedhimtoeightyearsinprison.[10][11] 2008:PorscheandsharesinVolkswagen[edit] Duringthefinancialcrisisof2007–2010,PorschecorneredthemarketinsharesofVolkswagen,whichbrieflysawVolkswagenbecometheworld'smostvaluablecompany.[12]PorscheclaimedthatitsactionswereintendedtogaincontrolofVolkswagenratherthantomanipulatethemarket:inthiscase,whilecorneringthemarketinVolkswagenshares,Porschecontractedwithnakedshorts—resultinginashortsqueezeonthem.[13]Itwasultimatelyunsuccessful,leadingtotheresignationofPorsche'schiefexecutiveandfinancialdirectorandtothemergerofPorscheintoVolkswagen.[14] OneofthewealthiestmeninGermany'sindustry,AdolfMerckle,committedsuicideaftershortingVolkswagenshares.[15][16] 2010:ArmajaroandtheEuropeancocoamarket[edit] OnJuly17,2010,Armajaropurchased240,100tonnesofcocoa.[17]Thebuyoutcausedcocoapricestorisetotheirhighestlevelsince1977.Thepurchasewasvaluedat£658millionandaccountedfor7percentofannualglobalcocoaproduction.[18]Thetransaction,thelargestsinglecocoatradein14years,wascarriedoutbyArmajaroHoldings,ahedgefundco-foundedandmanagedbyAnthonyWard.Wardwasdubbed"Chocfinger"byfellowtradersforhisexploits.ThenicknameisareferencetoboththeBondvillainGoldfingerandaBritishconfection.[19] References[edit] ^Lefèvre,Edwin(1923),ReminiscencesofaStockOperator,chapter19. ^"CorneringtheMarket-Definition,HowItWorks,Example". ^Aristotle.Politics.TranslatedbyH.Rackham.Retrieved2011-01-11. ^TheNewYorker:ACornerinStutz,23August1969 ^Romer,Keith(22October2015)."TheGreatOnionCornerAndTheFuturesMarket".NPR.Retrieved22October2015. ^Gwynne,S.C.(September2001)."BunkerHunt".TexasMonthly.Vol. 29,no. 9.Austin,Texas,UnitedStates:EmmisCommunicationsCorporation.p. 78. ^abEichenwald,Kurt(1989-12-21)."2HuntsFinedAndBannedFromTrades".TheNewYorkTimes.Retrieved2008-06-29. ^"Bunker'sBustedSilverBubble".Time.1980-05-12.ArchivedfromtheoriginalonOctober2,2008.Retrieved2008-06-29. ^Gettler,Leon(2008-02-02)."Wake-upcallsonroguetraderskeepringing,butwho'sansweringthephone?".TheAge.Melbourne.Retrieved2008-06-29. ^abPetersen,Melody(1999-05-21)."MerrillChargedWith2dFirmInCopperCase".NewYorkTimes.Retrieved2008-06-29. ^Jacque,LaurentL.(2010).GlobalDerivativeDebacles:FromTheorytoMalpractice.Singapore:WorldScientific.ISBN 978-981-283-770-7.Chapter7:Sumitomo,pp. 97–101. ^ "Hedgefundsmake£18bnlossonVW".BBC.2008-10-29. ^ "Squeezymoney".Economist.2008-10-30.Retrieved2008-11-01.; "ACleverMovebyPorscheonVW’sStock",TheNewYorkTimes; "Porschecrashesintocontroversyintheultimate'shortsqueeze'",TheDailyTelegraph ^ "VWpreparestotakeoverPorsche".BBC.2009-07-23. ^Boyes,Roger(2009-01-07)."AdolfMerckle,GermantycoonwholostmillionsonVWshares,commitssuicide".TheSundayTimes.London. ^"DerTag,alsdieVW-Aktie1.000Eurokostete".Frankfurt:Tagesschau(GermanTVseries).2018-10-26. ^Farchy,Jack(16July2010)."Hedgefunddevelopstasteforchocolateassets".FinancialTimes.Retrieved27July2010. ^Sibun,Jonathan;Wallop,Harry(17July2010)."MysterytraderbuysallEurope'scocoa".TheTelegraph.Retrieved27July2010. ^Werdigier,Julia;Creswell,Julie(July24,2010)."Trader'sCocoaBingeWrapsUpChocolateMarket".TheNewYorkTimes.RetrievedJuly27,2010. Retrievedfrom"https://en.wikipedia.org/w/index.php?title=Cornering_the_market&oldid=1110191527" Categories:BusinesstermsCommoditymarketsConsumerprotectionFinancialmarketsMarketfailureMarketstructureMetallismScarcitySecurities(finance)Anti-competitivepracticesHiddencategories:ArticleswithshortdescriptionShortdescriptionmatchesWikidataAllarticleswithunsourcedstatementsArticleswithunsourcedstatementsfromJanuary2011Articlescontainingpotentiallydatedstatementsfrom2022Allarticlescontainingpotentiallydatedstatements Navigationmenu Personaltools NotloggedinTalkContributionsCreateaccountLogin Namespaces ArticleTalk English Views ReadEditViewhistory More Search Navigation MainpageContentsCurrenteventsRandomarticleAboutWikipediaContactusDonate Contribute HelpLearntoeditCommunityportalRecentchangesUploadfile Tools WhatlinkshereRelatedchangesUploadfileSpecialpagesPermanentlinkPageinformationCitethispageWikidataitem Print/export DownloadasPDFPrintableversion Languages العربيةDeutschEspañolFrançaisעבריתമലയാളംPortuguêsไทย Editlinks