Missing trader fraud on the emissions market
| Pages | 183-194 |
| DOI | https://doi.org/10.1108/13590791111127750 |
| Date | 10 May 2011 |
| Published date | 10 May 2011 |
| Author | Marius‐Cristian Frunza,Dominique Guegan,Antonin Lassoudiere |
| Subject Matter | Accounting & finance |
Missing trader fraud on the
emissions market
Marius-Cristian Frunza and Dominique Guegan
Sagacarbon, Paris, France
PSE, Centre d’Economie de la Sorbonne,
University Paris 1 Panthe
´on-Sorbonne, Paris, France and
MSE, University Paris 1 Panthe
´on-Sorbonne, Paris, France, and
Antonin Lassoudiere
Rouen, France
Abstract
Purpose – The aim of this paper is to show evidence and to quantify with forensic econometric
methods the impact of the missing trader fraud (MTF) on European carbon allowances markets. This
fraud occurred mainly between the end of 2008 and the beginning of 2009. In this paper, the financial
mechanisms of the fraud are explored and the impact on the market behaviour, as well as the
consequences on its econometric features.
Design/methodology/approach – In a previous work, the first and second authors showed that the
European carbon market is strongly influenced by fundamentals factors as oil, energy, gas, coal and
equities. Therefore, the authors calibrated arbitrage pricing theory-like models. These models enabled
the impact of each factor on the market to be quantified. In this study, the authors focused more precisely
on spot prices quoted on Paris-based Bluenext market over 2008 and 2009. During this period,
a significant drop in performances and robustness of the model and a reduced sensitivity of carbon
prices to fundamentals was observed.
Findings – The authors identify the period where the market was driven by MTF movements and
were able to measure the value of this fraud. Soon after governments passed a law that cut the possibility
of fraud occurrence the performance of the model improved rapidly. The authors estimate the impact of
the value added tax extortion on the carbon market at e1.3 billion.
Originality/value – This paper describes the first study that attempts to prove and quantify
scientifically the MTF on emission markets.
Keywords Carbon, Air pollution,Pollution control, EuropeanUnion, Fraud
Paper type Research paper
1. Introduction
The fraudsbased on pocketinggovernmental taxes in theretail businesses is probablyone
of the eldest andmost “lucrative” illegitimateaffaire. It made over the timethe reputation
of severalalleged criminals as forinstance that of Michael Franzese[1],iconographicfigure
and one-time risingstar of the reputed New York-based Colombo family.
In the torments generated by the last economic fall, new sources ofillegitimate yields
have risen across the financial industry. The perpetual competition among investment
professionals forsupplying with more attractive returnsled in a lot of cases to cross not
only the efficient but also the legal frontier. As a result, the number of investment
institutions and markets allegedly linked to fraud schemes multiplied over the last
three years. From the historical loss of Jerome Kerviel reputed trader inside Socie
´te
´
Ge
´ne
´rale to the massive havoc provoked by the Madoff system, the financial industry
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Fraud on the
emissions
market
183
Journal of Financial Crime
Vol. 18 No. 2, 2011
pp. 183-194
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791111127750
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