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An Overview Of Gary Gensler's Oh-So-Limited Information On The Flash Crash
Right about now the world's foremost expert on pornography, Mary Schapiro, is discussing, on a cable channel near you, market structure. We urge you not to listen to her on pain of brain liquification. Sitting next to her is Goldman emeritus cum laude Gary Gensler, head of the organization that today is getting pounded in the buttocks by its inability to manipulate gold prices lower any longer, courtesy of a DOJ that is only 20 years behind the antitrust curve, thus resulting in a new all time high in the precious metal. Yet as both of these special people have something to say about the market crash, we have culled the key points from Gensler's prepared remarks that present the official party line on Thursday's festivities.
From Gary Gensler's prepared remarks:
Thursday, May 6th, started with turbulent skies as the market digested significant news and information. Many financial news outlets were reporting on the uncertainties emanating out of Europe. In this environment of uncertainty, market participants started to require higher premiums to bear risk as indicated by a number of measures. One leading measure, called the VIX index, earlier in the week between Monday and Wednesday rose 23.4 percent and on Thursday rose another 31.7 percent, reflecting increased uncertainty among market participants. From Wednesday to its highest point on Thursday, the VIX index rose 63.3 percent. Premiums were higher on credit default swaps on many European sovereign debt securities, including debt of Greece, Portugal, Spain, Italy and Ireland. The broad U.S. equity market declined as the S&P fell nearly 2 percent from its previous day’s close by 2 PM.
The stock index futures markets and other markets are intertwined, and market participants in the stock index futures markets look for price signals from many places. By early in the afternoon, market participants would have seen indicator lights starting to flash in a number of places. Though we do not now know how these individual events motivated traders, looking back now, here are some of the market changes that occurred in the 20-30 minutes running up to the decline. Futures market participants likely would have observed some of these things. Currency markets were volatile. Small capitalization equity securities began declining sharply some time after 2:00. In fact, by 2:24, there were already eight closed-end mutual funds that had declined by 50 percent or more since 2:00.
We understand from our meetings with exchanges that by around 2:30, the exchanges were finding that their order books were thinning out as the markets became less liquid, while at the same time some investors were executing hedging strategies to protect themselves against a market decline. In the few minutes before 2:40 pm, two exchanges, Nasdaq and BATS declared “self-help” with respect to the New York Stock Exchange (NYSE) Arca Equities, an electronic trading platform. Self-help permits one trading center to bypass the quotes of another trading center if the affected center repeatedly fails to respond to orders within a one-second time period.
Around 2:40 pm, a number of individual securities listed on NYSE went into slow mode. Our current understanding is that, over the next five minutes, more than 10 additional individual securities entered into slow mode. These slow modes, or “liquidity replenishment points,” occur to enable market participants to interact with quotes and orders manually to enhance liquidity and reduce volatility.
From 2:40 to 2:45:28, the E-Mini declined by 58.25 points, reaching an intraday low of 1,056 – a decline of 5.2 percent. From the CFTC’s preliminary review of detailed intraday trading records and special call information, we understand that between 2:42 and 2:45, some of the most active traders limited their trading activity in the E-Mini futures contract. At 2:45:28, the CME’s stop-spike mechanism’s 5-second pause took effect. Following that pause, the contract’s price began to move upward.
We will continue to review the May 6 events, and in particular how S&P futures traded in relation to the cash markets and to exchange traded funds keyed to the same index. One of the highest volume exchange traded funds is the SPDR1, which has a market capitalization of just less than $100 billion. Preliminary findings from the exchanges indicate the SPDR, which tracks the S&P 500, and the E-Mini futures contract were highly converged until the E-Mini started to rebound and the SPDR continued to decline another percent. In fact, we also saw that some stocks in the S&P 500 dropped faster than either the futures or the SPDR, such as 3M, and that, through the rally, the SPDR ETF was more volatile than the E-Mini. The S&P 500 and Nasdaq 100 cash indices reported their bottoms in the 2:46 minute.
By 2:49, the ETFs on the E-Mini, Dow Jones and S&P 500 had rebounded. By 2:50, the broad-based equity indices had recovered to near their 2:30 levels.
Through our review, we have learned that there were about 250 participants in the S&P E-Mini futures contract during the timeframe the market sold off. Of the 250, we have more closely focused our examination to date on the top ten largest longs and top ten shorts. The vast majority of these traders traded on both sides of the market, meaning they both bought and sold during that period – acting, essentially, as liquidity providers. One of these accounts was using the E-Mini contract to hedge and only entered orders to sell. That trader entered the market at around 2:32 and finished trading by around 2:51. The trader had a short futures position that represented on average nine percent of the volume traded during that period. The trader sold on the way down and continued to do so even as the price level recovered. This trader and others have executed hedging strategies of similar size previously.
Exchanges and market participants have stated their belief that it is unlikely that a “fat finger” mistake caused the heavy volatility of May 6. To date the CFTC staff review produced no evidence indicating that a “fat finger” was the catalyst.
The confusion in this data presentation is obvious. Gensler either really has no clue what is going on, or is desperately trying to cover up for one or several parties, who may have benefited from the imminent smooth passage of the $1 trillion European bailout (and heaven forbid one of them ends up being Gensler now criminally charged former employer). Of course, the usual suspects are all banks, with a particular emphasis on those of French descent. Nonetheless, we are very curious, not that we are particularly enthused by Gary's sequence of events, just who these "active traders" who "limited their trading activity in the E-Mini futures contract" were. In fact we love an itemized listing of each and every single one of these so-called liquidity providers who, suddenly, decided to stop providing liquidity.
Altogether, this hearing is just another waste of oxygen, because if the SEC, the CFTC and the exchanges want to get to the bottom of things, they would need to start with themselves and with the broken market structure that is critical to the retention of their paycheck, record bonuses and gift stockings courtesy of Wall Street, Quant firms and the loose bands of 23 year old math Ph.D. cliques better known as HFT organizations.
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sometimes i wonder if these 'special people' actually breath 'oxygen'. love your way with words - long sentences and all. tnx.
Alright it has been 15 years since I worked on the floor of the Chicago Mercantile Exchange , but recollection is the exchange doesn;t allow you to be both long and short at the same time. Yet above it states that the traders were doing just that. Please explain..
Bravo
"One of these accounts was using the E-Mini contract to hedge and only entered orders to sell. That trader entered the market at around 2:32 and finished trading by around 2:51. The trader had a short futures position that represented on average nine percent of the volume traded during that period. The trader sold on the way down and continued to do so even as the price level recovered"
What, revealing the names will "ostracize" them? Hedging is probably the dirtiest word in the language right now.
"This trader and others have executed hedging strategies of similar size previously"
Gawd. Even with all the data, they cannot shed a single beam of light. Incompetence thy name is SEC/CTFC.
it's almost as if... selling high... is... wrong?
(i didn't see *that* book at borders)
No. What i meant was why not release the data to the public? Lot of retail lost money. There are so many unanswered questions here:
-Who is the trader?
-Why are they being so defensive saying that "he kept selling even on the way up"? It isn't as if somebody made an accusation that they were purposely triggering stops or planned this shake and bake.
-Preemptively suggesting "such strategies were executed previously" to dispel any doubts.
Why all the secrecy? The trades are done. This is not going to hurt anyone (like say revealing borrowers at Fed window or AIG's counterparties). We'll decide if there was anything suspicious instead of all this rumor and innuendo.
++ makes sense - didn't mean the tone to be so blunt.
Geez, what a shitshow these assclowns are running.
i am beginning to believe the people in responsible positions who say they did not know what was going on.
Bank of NY Mellon Charged with fraud in Madoff scandal-- rut ro!!!!
BoNY Mellon unit charged with fraudBy Brooke Masters in London and Francesco Guerrera in New York
Published: May 11 2010 19:56 | Last updated: May 11 2010 19:56
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The New York attorney-general’s office has charged a Bank of New York Mellon subsidiary with fraud, saying it deliberately misled clients about investments tied to Bernard Madoff to protect its fee income.
The 50-page civil complaint filed on Tuesday alleges that Ivy Asset Management and two former senior officers concluded in 1998 that client money should not be put with Mr Madoff because he had lied to them and was not investing funds as advertised.
EDITOR’S CHOICE Asset managers under spotlight - May-11 Cuomo complaint against Ivy Asset Management - May-11 In depth: Madoff scandal - Mar-04But, the complaint says, Ivy did not inform clients who already had money with Mr Madoff of its suspicions for fear of alienating them and losing their fee income. Ivy reaped $40m in fees from clients with large Madoff investments between 1998 and 2008, the complaint says.
Ten years later, Mr Madoff confessed to running a multibillion-dollar Ponzi scheme and was sentenced to 150 years in prison. Ivy clients, including a dozen New York union pension funds, lost $227m, according to the complaint.
“Ivy and its former co-principals saw the trouble with Madoff coming around the bend, but instead of guiding their clients through the financial waters, they sold them down the river,” said Andrew Cuomo, New York attorney-general.
“They shamelessly profited off of their own clients’ impending misfortune and we are holding them accountable for their actions.”
As I read this I keep thinking of the phrase "cognitive dissonance."
Ultimately, as I've said before, I still believe Martha Stewart will go to jail for this.
SEC / Slime Every Corporation
"..the world's foremost expert on pornography.."
That is so god-damn hilarious, I had to stabilize my breathing with a brown paper bag.
I'm nearing the point where I don't dare read ZeroHedge without an oxygen tank nearby.
I believe Gary Gensler is sincere in his attempts to regulate the derivatives and metals markets. Im not going to write him off just because he worked for GS. When he chaired the CFTC meeting on possibly inplementing metals futures position limits, and Jeff Christian tried to weasel up to him by referring to their common alma mater GS, Gensler's skin seemed to crawl, and he responded that 'well, lots of people have worked for GS, and we have very different views on things'.
I think he's kind of like Hellboy, and will oppose the dark lords of his lineage, and he has been implemental in raising the stone fist over the head of silver manipulator JPM.
Great line Strannick!
So just who would be Rasputin in this scenario? Blankfein? Bernanke? Geithner? All of the above?
Interesting also that the final scene in "Hellboy" featured an evil, gigantic, multi-tentacled squidlike monster. Just a coincidence you say?
Your insights are starting to scare me, Strannick!
NASDAQ and BATS were mentioned in another thread as examples of providing extra information for the benefit of HFT traders.
Busy little buggers.
AKAK...
Speaking of nemesis, yours didnt have much to say today on the price of gold action. I guess that bear went into hibernation. Seems though, he got the month wrong. Seems like he got lots of things wrong...
I can't remember if it was last friday or on monday when I caught the last 15 minutes of Oprah while waiting for the local news to come on, but Suzie Orman was on the show and was asked about what happened. Her answer "It was a glitch". What a stupid ass!!
Anyone who listens to her is asking to get shanked by the Squid.
It reminded me of the Realtor joke
"Suzi researched this"
bold glitchez!
To date the CFTC staff review produced no evidence indicating that a “fat finger” was the catalyst.
That's because computers don't have fingers.
Reading this report you'd think that a bunch of guys in bright suspenders got all confused by market events and started selling and selling just as fast as they could write out tickets and dial the phone. Is there one mention of computer, machine or algorithm anywhere here? What a joke.
Computerised trading is way out of control. More problems like this are a question of when not if. Also, the marketplace is just too fragmented at this point; too many independent venues with their own rules. This makes computerised trading risks worse and together these problems dwarf any benefits accrued to the average investor via the much trumpeted exchange and "liquidity pool" competition. In some areas of human endeavor regulated monopolies make the most sense.
Cheaper, better, faster. I think you can really only pick two in a case like this and right now we're seeing where a market structure built around 1 and 3 ultimately leads us.
9% of the volume? Isn't that beyond limits?
This douchebag's combination of "Intertwining turbulent skies, and emanating uncertainties..." leaves one wondering if Mickey Spillane wrote these piece of shit remarks after attending a Dickens seminar.
"We understand from our meetings with exchanges that by around 2:30, the exchanges were finding that their order books were thinning out as the markets became less liquid..."
Does anyone TRULY believe that this cornhole doesn't know where the market liquidity has been coming from, and why it was oh-so suddenly absent?
Excuse me while I shove a claw hammer up my ass sideways, as it will be more pleasant than the fucking we continue to be handed daily.