The Impact of Commodity Benchmarks on Derivatives Markets: The Case of the Dated Brent Assessment and Brent Futures

53 Pages Posted: 15 Jan 2016 Last revised: 21 Nov 2018

See all articles by Alex Frino

Alex Frino

Macquarie University

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Macquarie Business School

Tom Steffen

University of Geneva

Date Written: August 1, 2017

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.

Keywords: Dated Brent, physical crude oil, benchmark assessment, Brent futures

JEL Classification: G13, G14, Q02, Q41

Suggested Citation

Frino, Alex and Ibikunle, Gbenga and Mollica, Vito and Steffen, Tom, The Impact of Commodity Benchmarks on Derivatives Markets: The Case of the Dated Brent Assessment and Brent Futures (August 1, 2017). Journal of Banking and Finance, 2018. Available at SSRN: https://ssrn.com/abstract=2716030 or http://dx.doi.org/10.2139/ssrn.2716030

Alex Frino

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Gbenga Ibikunle

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

Vito Mollica

Macquarie Graduate School of Management ( email )

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Tom Steffen (Contact Author)

University of Geneva ( email )

Geneva
Switzerland

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