Market Manipulation in the Financial Crisis?

thetrader's picture


The Trader has covered many of the market microstructure questions over the past months,  that should concern many more. Majority of investors, managers, traders and others have not adapted to the “new” market, nor have they realized what is actually going on. With HFT dominating every market move, people still feel an increasing frustration, but have not adapted accordingly. This is due to lack of insight. Our biggest “fear”, is that an increasing amount of investors, end up avoiding the markets, purely due to the fact that the markets have become a “monster”, that is overseen by nobody. The competence gap between the regulators (worldwide, not only the SEC) and the market has become huge.


We have still not read any intelligent analysis from regulators what actually happened during the flash crash last year. We have not read too many reports of what happened after the uptick rule was abolished etc. We are pro technical “algo” development, but are not pro broken markets. One of our biggest fears, is the fact this market is showing signs of fatigue, and where some external events might trigger a total failure of the market microstructure. Market micro structure must be overseen by the regulators, but in order to do so successfully, they need to gain competence and understanding of what is going on in “live” trading. HFT is one aspect, but there are many more. Below interesting observations on the bear raid in Citi at the beginning of the 207 crisis (still ongoing). Could this bear raid have caused the crisis to become much deeper? By Misra, Lagi and Bar-Yam;

We provide direct evidence of market manipulation at the beginning of the financial crisis in November 2007. The type of market manipulation, a \bear raid,” would have been prevented bya regulation that was repealed by the Securities and Exchange Commission in July 2007. Theregulation, the uptick rule, was designed to prevent market manipulation and promote stabilityand was in force from 1938 as a key part of the government response to the 1928 market crash andits aftermath. On November 1, 2007, Citigroup experienced an unusual increase in trading volumeand decrease in price. Our analysis of nancial industry data shows that this decline coincidedwith an anomalous increase in borrowed shares, the selling of which would be a large fraction of thetotal trading volume. The selling of borrowed shares cannot be explained by news events as thereis no corresponding increase in selling by share owners. A similar number of shares were returnedon a single day six days later. The magnitude and coincidence of borrowing and returning of sharesis evidence of a concerted eort to drive down Citigroup’s stock price and achieve a pro t, i.e., abear raid.


Interpretations and analyses of nancial markets should consider the possibility that theintentional actions of individual actors or coordinated groups can impact market behavior. Marketsare not suciently transparent to reveal or prevent even major market manipulation events. Ourresults point to the need for regulations that prevent intentional actions that cause markets todeviate from equilibrium value and contribute to market crashes. Enforcement actions, even ifthey take place, cannot reverse severe damage to the economic system. The current \alternative”uptick rule which is only in eect for stocks dropping by over 10% in a single day is insucient.Prevention may be achieved through a combination of improved transparency through availabilityof market data and the original uptick rule or other transaction process limitations.

Full report here

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dcb's picture

you can lookat much more than citi. I believe during bear sterns they were trading much more than the avbailable flot of the company, etc. there was lots written about that one.

dcb's picture

wow, you just figured this out, that the crisis was man made and manipulated. they used to provide the prop desk trading data from wall street (this site used to have it). no doubt it was manipulated, and well you have not much need to look further tahn goldman sachs. do a search on this site, it should come up. it's one of the reasons they don't want to investigate the crisis too much, because they they would have to acknowledge many things aboyut the market the don't want to. Notice no major nes outlet never iese the word manipulation. for gods sake there were tinmes on the boards where every trader could see it, and I pinpointed to the day when the algo;s took over about 2.5 years ago. spend a lot of time with the data on the big drop three months long from jan to march (2009) at times g9oldman waqs trading something like 40% of the market, down day, after, day, etc. they just don't want to find it.

Plus don't forget that guy who stiole the goldman code "that can be used to manipulated the market, and the multiple quarters of no days of losses on trading. please of course it'smaniplated. the game is to figure the algo program.

As I have tride to explain at the pundits at the financil times a market functions based on the way it's traded. so, I said it over two years ago, and now you are seeingthe clear evidence of that showing up and people ttalking about it.

use the 'speed lines"

MrBoompi's picture

When you leave a stack of money on a park bench you shouldn't be surprised someone will steal every last dollar.

Maybe Greenspan was right.  Maybe corruption and fraud will be "handled" by the market itself.  But the chances are much greater that monkeys will begin flying out of my ass.



Sabibaby's picture

I thinkyour spacebar is broken butmaybe you did thaton purpose? 


Question though... do youforget the decimal pointon the numbers you run?

tooktheredpill's picture

I think he forgot to remove the ? at the end of the title too.

Of course there is manipulation. Humans are working this after all.

ebworthen's picture

The past decades dilution or elimination of rules put in place after the Great Depression tells you that a new generation of thieves has come to town.

the grateful unemployed's picture

short selling is an interesting practise, since the market is made to go higher, not lower, its discouraged. any reasonable analysis would see right through the uptick rule. the borrowing of shares is a holdover from the days when people actually transferred the stock certificate in the mail. since all shorts sales are essentially third party transactions neither uptick nor borrowing has any real purpose, other than to prevent them from running stocks down, the way they run them up, on margin. and remember all short sales are done on margin, period. additionally there is no margin on shares trading below $5.

now when i short CITI for instance i am making a bet with a third party, who ostenisbly holds the share at his firm. they may not be his, no matter, we know how rehypothecating works. what's the point of socalled phantom shares? nothing, if a third party wants to take on the risk that's their business. is it possible to construct a bear raid on a company? sure, but why would you want to do this if you didn't think the fundamentals were rotten in the first place? in other words if you had enough money to run IBM to zero, why would you? and you might get some pushback as well.

however margin rules are very lenient in these matters, and you can control 3 or 4 times your cash in short positions. brokers tell you short selling is not worth it because a stock can go to zero on the downside, but there is no limit on the upside. however in a general market selloff the evaporation of real wealth makes those profits from short sales much larger than bull market profits (which everybody who is in the market has those same profits, causing inflation)

in the current economic environment longs often hedge their position, so if you take away the shorts, you're stealing their hedge, and the position blows up. if shares are hard to borrow, then the options premium on puts should reflect it, because the put sellers are always going to hedge.

finally my broker used to tell me when the shares were being called in, and while i never cared to trade the information (perfectly legal) it almost always meant a short term rally in the share price was coming. in the current environment online brokers will pretty much give you anything you want, if you don't want too much. i could get a new short right away online, while my broker couldn't get me the same stock until the next day, or not at all.

a few years ago everyone was talking about single stocks futures, but how silly is that, every position in a futures market has to have an offsetting seller. how are you going to ponzi that higher? the stock market is just a vestige of the feds printing press, and occassionally the fed finds it necessary to shrink the money supply.

Everybodys All American's picture

and so now we are supposed to believe that Jon Corzine will commit perjury for Jamie Dimon. I call BS.

jack stephan's picture

Someone on here said "There is no market only the squid".  Anyone who invests in this seems to be trying to playing "Let's beat the freight train across the tracks" daily like an adrenaline junkie...I know, I have many times ......literally. Many chase tails in circles on here with speculation and political overkill seems to be after treasuries, then........ the bottom line, whatever day or month it occurs. Gold to hold up commerce and oil for all else.  Oil and Metals seem to the only constants...The rest is pixie dust spreading on the tilt o' whirl.

Get physical like Steady B, you scalliwags.  Seems a given.

So I'm going to get my 12 pack of ipa......and just watch now, Quitting while I'm ahead is not the same as quitting, I'll probabaly take a bath once or twice, but I got my rubber duckies.  Fuck it.

Take care zh

maybe I'm wrong, pay me no mind.

CPL's picture

You know what happens over the course of three years if you load down a bear with annoyances?


It gets stronger to offer the equal and opposite reaction to the course given.  They remove any of the weights they've tied around the bear's neck, and we'll see the markets...all of them, at zero the same day. 


If the dumbasses just left well enough alone and let the shit run it's course we wouldn't be talking about the complete destruction of the capital system in place right now.

clones2's picture

I cant believe we still use the term "Market" when it is anything but that.  A "Market" implies that your item is only worth what someone else will pay for it.

Every regulation and rule put in place with our "market" is to do anything possible from anything negative to the downside occurring. 

Our "market" seems more everyday like a videogame in cyberspace run by computers that trades on anything except fundamentals and valuation.

clones2's picture

Of course everything is AWESOME, as long as the screen is green.

Tuffmug's picture

Uptick rule was a manipulation which biased markets to the upside. I'm glad it's gone. Markets probably reflect fair value better because it is gone. This guy just a sell side idiot who only wants upside manipulations where bull pools run up stocks to sucker in the retail trade and stick them with overpriced stocks.

calltoaccount's picture

The name of the game is counterfeiting enabled by the Wall Street owned and operated DTCC's broker/dealer Stock Borrow Program scam.  Per Dr. Jim DeCosta:


  1. "The NSCC subdivision of the DTCC issues what is referred to as a “trade settlement guarantee”. This gives market participants confidence to participate in our markets and it pretty much eliminates what’s referred to as the “contra-party risk” that a buyer and seller on Wall Street would otherwise incur. The “trade settlement guarantee” IMPLIES that should an NSCC participant become insolvent then all other NSCC participants will step in in a pro-rata fashion to effect either the delivery of undelivered shares or payment for unpaid for shares. The problem is that it’s a total crock because when insolvency does occur in cases like Thomson Kernaghan or Adler Coleman there are no buy-ins that ensue. The FTDs are merely “RECAPPED”, rolled back in age to T+1 and then sent back to the NSCC’s self-replenishing SBP “car wash” for a new “curing”. Here, one impossible to identify parcel of shares can be simultaneously loaned in a dozen different directions to “cure” a dozen different FTDs. Why? Because the recipient of the borrowed shares used to cure a delivery failure (the buyer in the transaction resulting in an FTD) becomes the “legal owner” of those shares with all of the right in the world to re-donate that parcel of shares right back into the SBP lending pool AS IF THEY NEVER LEFT IN THE FIRST PLACE.
  2. Theoretically “legal” short selling in our clearance and settlement system is also corrupt, as the purchaser of the borrowed shares once again becomes the “legal owner” of them and has all of the right in the world to lend those borrowed shares to yet a different short seller. Non-decrementing “legal” short selling is corrupt as all get out; abusive naked short selling is flat out criminal.
  1. The other thing you have to realize is that in the above example wherein one parcel of impossible to identify shares (due to the “anonymous pooling” of shares demanded by the DTCC) that is being simultaneously rented out to a dozen different short sellers after being “replicated/counterfeited” there are 12 different Wall Street firms earning rental fees for the loaning of that ONE parcel of impossible to identify shares. If those shares happen to be “hard to borrow” which equates to “expensive to borrow” then the Wall Streeters are making an absolute fortune at the expense of the decreased prognosis for success of the U.S. investors’ investment.
  2. People aware of this “self-replicating” of shares on Wall Street do not use margin accounts. When you sign a margin agreement you approve the “re-hypothecating” or loaning out of your shares. That’s fine. You did not, however, approve of the “counterfeiting” of your particular parcel of shares a dozen times over and the simultaneous renting out of your parcel of shares to 12 different parties intent on bringing down the company you invested in. The DTCC,the parties earning all of that rental income and the parties doing the short selling all argue that the “anonymous pooling” of shares at the DTCC is a necessity because it is so darn “efficient”. You have to keep in mind that the purchasers of the one authentic parcel of shares as well as the purchasers of the 11 “knock offs” all have the right to resell that which they purchased. This increases the “supply” of that which is readily sellable which causes the share price to crash."


DeadFred's picture

Retail trade? Quaint idea, reminds me of horseless buggies and corsets.

My operating thesis is that we are watching the purposeful destruction of the market as a price discovery mechanism. The ones who control the algos are attempting to run the trading competion out of day to day action. Once volume reaches a critical low level the robots will own 'price discovery' and can move prices where it best fits the needs of their masters. Someone tell me where I'm wrong if I'm wrong but I see no reason that a low volume market can't be manipulated to any price level desired with minimal cash input.

If I'm correct I expect one or more strong price drops so the new owners can establish positions then a relentless rise in the index levels no matter the fundamentals. A consistantly rising stock market will be an effective anesthetic for the masses as the squid is draining their lifeblood through debt serfdom.

CIABS's picture

tuffmug: how much closer to "fair value" do you think markets are now?

deadfred: as you know, your strong price drop followed by a relentless rise is what happened during the last four years.  another one probably coming soon.  u.s. equities for the last seventeen years have been an exercise in shaking the tree.  not many amateurs buy low and sell high; they do the opposite.

Lazane's picture

That horned beast is running for its life

Village Smithy's picture

All that aside, if that is a genuine photo it is incredible. The absolute definition of fear caught on a camera.

the grateful unemployed's picture

and if you look closely you can see the bear has already had a taste, which is just going to keep him on the scent. a fitting photo analogy.

Benjamin Glutton's picture

Is there a Lawyer in the house?


This agreement arises out of an investigation by the Division of Enforcement (the "Division") of the United States Securities and Exchange Commission (the "Commission") into possible violations ofthe federal securities laws by the Federal Home Loan Mortgage Corporation (the "Respondent" or "Freddie Mac") and others that occurred in or about December 2006 through September 6, 2008, arising from, among other things, public statements concerning Freddie Mac's exposure to Subprime and Alt-A mortgages (collectively, the "Investigation"). Prior to a public enforcement action being brought by the Commission against Freddie Mac, without admitting or denying liability, Respondent has offered to accept responsibility for its conduct and to not dispute, contest, or contradict the factual statements set forth in Exhibit A, as specifically provided herein. Accordingly, the Commission and the Respondent enter into this Non-Prosecution Agreement (the "Agreement").
The Respondent is a corporation organized and operated under the laws of the United States of America, subject to the ongoing supervision of the Federal Housing Finance Agency ("FHF A"). On September 6, 2008, FHF A placed the Respondent into conservatorship, and as conservator, succeeded to all rights, titles, powers and privileges of the Respondent and its shareholders, officers, and directors with respect to the Respondent and its assets. As conservator, FHF A maintains a continuous on-site presence at the Respondent and provides substantial oversight over the Respondent, including, among other things, with respect to its corporate governance, regulatory compliance and operations. In addition, the United States Treasury has made substantial capital investments in the Respondent and holds senior preferred stock, as well as warrants representing an ownership stake of up to 79.9 percent of the Respondent's common stock.
In entering into this Agreement, the Commission recognizes the unique circumstances presented by the Respondent's current status, including the financial support provided to the Respondent by the U.S. Treasury, the role of another government agency (FHFA) as conservator, and the costs that may be imposed on U.S. taxpayers. Based on these circumstances and in consideration of the public interest, subject to the full, truthful, and continuing cooperation of the Respondent as described below and its satisfactory performance of all obligations and undertakings herein, the Commission and Respondent enter into this Agreement with the terms and conditions contained herein.

blueridgeviews's picture

"Majority of investors, managers, traders and others have not adapted to the “new” market, nor have they realized what is actually going on"


That's because a majority of investor's are not privy to the insider manipulation by the Fed's and their pet financial institutions.

Davilis's picture

Hmmm, at this point the bear raids may be doing more good than harm.  If we don't hurry the program along, we're in danger of missing the long cycle target dates.  A few more MF Globals should do the trick -- preferably in Europe but maybe that's too obvious.

Widowmaker's picture

The entire financial system is one giant government insulated abortion bonanza.

It's not broke, it's a fucking joke masking larceny and criminal enterprise dripping with fraud as "business."

Regulators?  HA!  There is your punchline.

Let the big ones fail, quit rewarding failure and moral/political hazard.  End of story.

Hansel's picture

The uptick rule?  GMAFB.

jackinrichmond's picture

thats what happens when you leave the criminals in charge of regulating themselves.   the sec and cftc are a joke.