TY - JOUR ID - 118106 TI - A Novel Approach for Circular Trade Detection in Mercantile Exchange JO - International Journal of Industrial Engineering and Management Science JA - IJIEMS LA - en SN - 2409-1871 AU - Heshmati, Zainabolhoda AU - Salahshour, Ramin AD - Amirabad, North Kargar Street, Faculty of New Sciences and Technologies, University of Tehran AD - University of Tehran Y1 - 2020 PY - 2020 VL - 7 IS - 1 SP - 115 EP - 126 KW - Circular Trading KW - Pump and Dump, Anomaly Detection KW - Trade Networks KW - Derivative Assets DO - N2 - The derivatives market having a significant number of investors trading in futures contracts, is vulnerable to manipulation by some perpetrators. Protecting market participants from a prevalent manipulation called circular trading and providing a fair market has always been a challenging task for regulators. This kind of malpractice is represented by the trading behaviors of a group of investors who trade among themselves frequently to increase the price of a commodity and consequently make forged prosperity. This type of securities fraud is also very similar to the well-known pump and dump strategy which involves artificially inflating the price of an owned stock, in order to sell the cheaply purchased stock at a higher price. This paper presents a network-based approach for detecting investors involved in such circular trading in the futures market. This is done initially by constructing the daily networks of investors’ trades, then, extracting all trade cycles of various lengths from these daily networks to arrive at the group of initial suspicious cycle traders. Finally, in order to exclude investors who are randomly involved in suspicious cycles, price fluctuations over time were analyzed. The proposed approach has been conducted on real data from Iran Mercantile Exchange (IME) and as a warning system, has succeeded in detecting anomalous traders effectively. UR - https://www.ijiems.com/article_118106.html L1 - https://www.ijiems.com/article_118106_515117fb2b1ea9c3430104c04a690691.pdf ER -