The impact of commodity benchmarks on derivatives markets: the case of the dated Brent assessment and Brent futures

Alex Frino, Gbenga Ibikunle, Vito Mollica, Tom Steffen

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We examine the response of ICE Brent Crude futures to the spot Dated Brent benchmark published by Platts. Trading activity in the futures market intensifies during the benchmark assessment. We also find trading in the direction of the published benchmark during the price assessment window. Aligned positions and a substantially increased arrival rate of informed traders suggest that sophisticated traders, taking advantage of a rise in uninformed trading activity, induce the price run-up in Brent futures, ahead of the Dated Brent assessment end. The general increase in the arrival rate of both informed and uninformed traders during the assessment window underlines the benchmark's relevance and its potential for attracting liquidity. Our results are robust to alternative specifications and underscore the significance of physical commodity benchmarks as critical elements of the financial market infrastructure.

LanguageEnglish
Pages27-43
Number of pages17
JournalJournal of Banking and Finance
Volume95
Early online date26 Aug 2017
DOIs
Publication statusPublished - Oct 2018

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Derivative markets
Benchmark
Commodities
Trading activity
Traders
Financial markets
Liquidity
Informed traders
Futures markets

Keywords

  • benchmark assessment
  • brent futures
  • dated brent
  • physical crude oil

Cite this

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abstract = "We examine the response of ICE Brent Crude futures to the spot Dated Brent benchmark published by Platts. Trading activity in the futures market intensifies during the benchmark assessment. We also find trading in the direction of the published benchmark during the price assessment window. Aligned positions and a substantially increased arrival rate of informed traders suggest that sophisticated traders, taking advantage of a rise in uninformed trading activity, induce the price run-up in Brent futures, ahead of the Dated Brent assessment end. The general increase in the arrival rate of both informed and uninformed traders during the assessment window underlines the benchmark's relevance and its potential for attracting liquidity. Our results are robust to alternative specifications and underscore the significance of physical commodity benchmarks as critical elements of the financial market infrastructure.",
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The impact of commodity benchmarks on derivatives markets : the case of the dated Brent assessment and Brent futures. / Frino, Alex; Ibikunle, Gbenga; Mollica, Vito; Steffen, Tom.

In: Journal of Banking and Finance, Vol. 95, 10.2018, p. 27-43.

Research output: Contribution to journalArticleResearchpeer-review

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