corner the market

Cornering the market

In finance, to corner the market is to purchase enough of a particular commodity to allow the price to be manipulated, whether undertaken by an individual or a company. (In general business usage, a company described as having "cornered the market" has a very high market share.) This can be done through several mechanisms, for example buying futures contracts on a commodity then selling them at a profit after inflating the price. In attempting to corner a market, the term "stockpile" is used as a verb: to stockpile something is to hoard, or retain a quantity of a given commodity. In this context, "stockpile" can also refer to the hoarded commodity in its collective sense, regardless of its location (money in a bank, oil traveling through pipelines or refineries for example).

Cornering the market has a long and checkered history. Although there have been many attempts to corner markets in everything from tin to cattle, to date very few of these attempts have ever succeeded. The party attempting to corner a market can become very vulnerable due to the size of their position, especially if this becomes widely known. If the rest of the market senses weakness it may resist any attempt to artificially drive the market any further by actively taking opposing positions. When the price starts to move against the cornering party they are in a very difficult position as it is likely to be impossible to exit much of their position without catastrophically moving prices against themselves. In such a circumstance many other parties will be able to profit from the cornerer's need to unwind their position.

An example occurred in the late 1970s and early 80s when brothers Nelson Bunker Hunt and Herbert Hunt attempted to corner the world silver markets, at one stage holding the rights to more than half the world's deliverable silver. During Hunt's accumulation of the precious metal silver prices rose from $11 an ounce in September 1979 to $50 an ounce in January 1980. Silver prices ultimately collapsed to below $11 an ounce two months later, much of the fall on a single day now known as Silver Thursday.

More recently rogue trader Yasuo Hamanaka, Sumitomo Corporation's chief copper trader, attempted to corner the international copper market over a ten year period leading up to 1996. At one point Hamanaka is believed to have controlled approximately 5% of the world copper market. As his scheme collapsed Sumitomo was left with large positions in the copper market, ultimately losing US$2.6 billion. In 1997 Hamanaka pleaded guilty to criminal charges stemming from his trading activity and was sentenced to an eight year prison sentence. On June 28, 2006, the Commodity Futures Trading Commission filed papers indicating its belief that BP traders illegally cornered the U.S. propane market. The CFTC and the Department of Justice later agreed to allow BP to pay a fine of more than $300 million in return for dropping the civil suit and the criminal investigation.

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