The Next Step in Controlling Free Markets?

[bandycpa]

Is this a normal reaction to a market swing?


http://www.foxnews.com/politics/2010...-market-swing/

- FOXNews.com

- May 07, 2010
Obama: Regulatory Authorities Investigating Wild Stock Market Swing

President Obama says regulatory authorities are looking into Thursday's wild swings in the stock market with an eye toward protecting investors and preventing something like that from happening again.

President Obama said Friday that regulatory authorities are "evaluating" Thursday's wild swings in the stock market with an eye toward protecting investors and preventing something like that from happening again.

A computerized sell-off sent the Dow Jones industrial average plummeting by a near-record 1,000 points within about a half-hour Thursday afternoon. Fear that the European debt crisis could spread was a factor. The market regained two-thirds of that loss before the end of trading.

Obama characterized the swing as "unusual market activity" and said that regulatory authorities would make findings of their review public along with recommendations for "appropriate action."

Obama said he spoke Friday with German Chancellor Angela Merkel about the economic situation in Europe. He says they agreed on the need for a strong response by the affected countries and the international community.

[akv]

It is with weakening ratings and midterm elections in 6 months

[BrainStorm]

If, as has also been reported, the problem stemmed from a trader adding a couple too many zeros to his sell order then part of the problem is poor software engineering. It is inexcusably incompetent when creating a user interface not to check the input for reasonableness and challenging the user when it is not.

Failing programming 101, no quality control and no adult supervision. Unfortunately, this is par for the course in most of the software I encounter. And this is in the private sector. Care to hazard a guess of how things go in the public sector.

[akv]

It is inexcusably incompetent when creating a user interface not to check the input for reasonableness and challenging the user when it is not.

Most of these programs have such features but they are turned off for speed of execution. The stat arb prop shops each make thousands of equity trades a day, (and provide the bulk of the liquidity for the equity markets). The problem with a black box stat arb computer program is just that, it has preset defaults that can trigger and escalate, even if the initial catalyst was an extreme case of fat fingers from another firm. I have seen this sort of thing before, happens every 6-8 months, but not of this magnitude, perhaps this is evidence of the levels of uncertainty in the markets of late.

Reasonabless is also relative, a firm may have the capital to place an order with a magnitude error which overwhelms current liquidity. Personally I am more concerned about the government stepping in to break trades, etc. not sure where this ends up.
So IMHO it's complicated.

[echoes]

Originally Posted by bandycpa

Is this a normal reaction to a market swing?


http://www.foxnews.com/politics/2010...-market-swing/

- FOXNews.com

- May 07, 2010
Obama: Regulatory Authorities Investigating Wild Stock Market Swing

President Obama says regulatory authorities are looking into Thursday's wild swings in the stock market with an eye toward protecting investors and preventing something like that from happening again.

President Obama said Friday that regulatory authorities are "evaluating" Thursday's wild swings in the stock market with an eye toward protecting investors and preventing something like that from happening again.

A computerized sell-off sent the Dow Jones industrial average plummeting by a near-record 1,000 points within about a half-hour Thursday afternoon. Fear that the European debt crisis could spread was a factor. The market regained two-thirds of that loss before the end of trading.

Obama characterized the swing as "unusual market activity" and said that regulatory authorities would make findings of their review public along with recommendations for "appropriate action."

Obama said he spoke Friday with German Chancellor Angela Merkel about the economic situation in Europe. He says they agreed on the need for a strong response by the affected countries and the international community.

Bandy, great question!

Happened to be watching yesterday, in four min time, when the Dow lost 1,000points. Never saw that before, but for sure, would not throw my un-educated opinion out in front of the world stage, as to why. Why the big O said what he did, who knows...maybe to further His own agenda? Set Himself up as a saviour of yet another "failing" incompetent brick in Our Free-Market soceity that the Government needs to get a handle on?
Let's see, Auto, Oil, Banking...hmmm, what's next???

Maybe my tinfoil is getting to tight..... Well, we'll see....

Holly

[bandycpa]

Originally Posted by echoes

Bandy, great question!

Happened to be watching yesterday, in four min time, when the Dow lost 1,000points. Never saw that before, but for sure, would not throw my un-educated opinion out in front of the world stage, as to why. Why the big O said what he did, who knows...maybe to further His own agenda? Set Himself up as a saviour of yet another "failing" incompetent brick in Our Free-Market soceity that the Government needs to get a handle on?
Let's see, Auto, Oil, Banking...hmmm, what's next???

Maybe my tinfoil is getting to tight..... Well, we'll see....

Holly

Holly,

That's my gut feeling too. Things that normally did not have government involvement, even from a commentary point of view, now suddenly has government written all over it.

The more the government gets a handle on, the less secure I feel.


Bandy

[echoes]

Originally Posted by bandycpa

Holly,

That's my gut feeling too. Things that normally did not have government involvement, even from a commentary point of view, now suddenly has government written all over it.

The more the government gets a handle on, the less secure I feel.
Bandy

Concur Bandy, but am also curious how many other Americans "get it?" Do they get that this administration is attempting to very quietly take over free trade and commerce? Maybe I should invest in "Reynolds,"...hear they make a good strong foil...

Scary sh** indeed, IMHO

Holly

[6.8SPC_DUMP]

There's no question some major HFT firms made the biggest one day killings in stock market history yesterday.

The only question is if the 16 billion worth of futures (sold in 2 minutes) on the E-mini S&P 500 (off CME), that prompted a liquidity vacuum from the united shifting of their algorithms’ parameters to sell into the market, was a "fat fingered" mistake - or done to make the killing they did.

No "investigator" will be able to prove it because many trading venues aren't subject to a clearing house; so all they have to do is deny it.

It's not watching large cap stocks* go to zero or one cent and pop right back without getting a piece of the action that has some people pissed: it's the whole deal about having the American tax payer taking on the burden of paying off their debt.

A senior Obama administration official on Friday afternoon told Fox Business Network that a so-called fat finger error wasn't at the root of Thursday's price swings.

"We'll be continuing to cooperate with regulators if they have further questions," said Kim Taylor, president of CME Clearing, the clearinghouse unit of CME Group Inc. "We're continuing to look at this in that respect. But we feel comfortable that we're in a position where we looked at our audit trail and don't find that there was anything erroneous."

She added that "there is no evidence of trades that would've violated error trade policies on our markets."

The Securities and Exchange Commission and the Commodity Futures Trading Commission declined to comment on details of their review, beyond a brief statement late Thursday saying that officials were looking into "unusual trading."Link

• *Exelon (NYSE:EXC)
  
• Accenture (NYSE:ACN)
  
• CenterPoint Energy (NYSE:CNP)
  
• Eagle Material (NYSE:EXP)
  
• Genpact Ltd (NYSE:G)
  
• ITC Holdings (NYSE:ITC)
  
• Brown & Brown (NYSE:BRO)
  
• Casey’s General (NASDAQ:CASY)
  
• Boston Beer (NYSE:SAM)

[akv]

The thing folks often miss, the past two years have been a banking crisis not a hedge fund crisis, the hedge funds aren't too big too fail when they lose money, they go out of business.

Even back in 98 with LTCM, the banks made a fortune off their demise.

[Richard]

To be continued...

Richard's $.02

[akv]

IMHO, only Bear was needed due the fact they were the largest PB. Lehman was unnecessary.

Don't get me wrong back in 1998 LTCM was both arrogant and irresponsible, they got too levered and deserved their fate, what killed them however was the PB's smelled blood in the water and changed their margin requirements midstream, forcing LTCM to sell distressed positions to them for peanuts. John Corzine could lead the Somali Pirates.

A Citadel collapse may have an effect for a few days, like Amaranth back in 2006, but it isn't too big too fail. Ken Griffin learned from what the banks did to LTCM regarding his capital requirements and had PB rates locked in.

[akv]

Originally Posted by Broadsword2004

Did the Russian ruble crisis also play a role in bringing down LTCM?

Yes, it absolutely did. LTCM put on a large number of fixed income positions employing leverage, market factors that effect interest rates and fixed income (the Russian crisis being foremost amongst them in 1998) placed strains which resulted in these securities plummeting in value. Then the PB's switched leverage terms on them and forced buy ins.

A similar example for an individual would be if you had bought securities in a margin account which went down in value close to a margin call. You were still solvent, but close, then the brokerage firm you have the account with sees a golden opportunity ( never waste a crisis) to force you sell them the securities at these prices by now increasing the margin requirements on you. They can't get away with this anymore. The takeaway here is common sense as always, leverage can be useful, but don't buy things you can't pay for. Even if something is a good investment don't buy an amount beyond your means.