Wednesday, May 12, 2010

One Dude might be responsible for the stock avalanche

So apparently the current inquiry into the recent market madness is focusing on ONE DUDE....
check out the latest info in this NYTIMES article here.

Here is an excerpt from the article:
Gary Gensler, the chairman of the Commodity Futures Trading Commission, said at a Congressional hearing on Tuesday that during that crucial time period, the futures trader, whom he would not identify, accounted for about 9 percent of trading volume in the most actively traded stock-index derivative contract, known as the 500 e-mini futures contract. 


Here is another story about it with more details.

During the time period in question, Gensler said the vast majority of the top traders both bought and sold, acting as liquidity providers.
Gensler's testimony hones in on the activity of a single trader in the E-Mini contract but doesn't say whether that trader is to blame for the plunge or if that trader has done anything wrong.
"One of these accounts was using the E-Mini contract to hedge and only entered orders to sell," Gensler's testimony said. "That trader entered the market at around 2:32 [p.m.] and finished trading by around 2:51" on May 6.
"The trader had a short futures position that represented on average nine percent of the volume traded during that period," Gensler said. "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."
Gensler also repeated comments from the trading exchanges and SEC Chairman Mary Schapiro that their reviews haven't turned up evidence of a "fat finger" that substituted billions for millions.

For those of you who aren't sure what a SHORT FUTURES POSITION IS, check this explanation out.

also this is interesting... Futures contracts do not have the short-selling uptick rules as stock trading does

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