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September 30, 2004

Suspicious Trading In Options Industry

By Gregory Bresiger

Proprietary options traders may be rigging prices in the week leading up to the expiration date, according to Professor Allen Poteshman at the University of Illinois at Urbana Champaign.

Poteshman recently finished a study that found that sometimes sellers buy and sell shares in an underlying stock to prevent the options from expiring. He adds that the study was presented to former SEC Chief Economist Lawrence Harris. The SEC declined comment.