thanks...i found them in the meantime. cycle pro on Wednesday's market manipulation:
Here was the sequence of events:
8:35:52 ND futures limit down (-95) 3075.00, Prem 33
8:40:28 SP futures limit down (-35) 1324.80, Prem 3.4
8:42:15 NDX index low, 2982.04
8:45:00 ND futures halt trading, 3075.00, Prem 82
8:47:06 ND futures resume trading, 3050.00, Prem 77
8:48:15 ND futures low (-135) 3035.00, Prem 39
8:48:45 SPX index low, 1305.79
8:50:00 SP futures halt trading, 1324.80, Prem 17
8:52:07 SP futures resume trading, 1325.00, Prem 17
When the futures were locked limit down, the SPX was trading at 1321.38 and still sliding, eventually hitting a low of 1305.79. When the futures came out of the limit down situation, the SPX was at only 1307.86, 13.5 points lower than when the futures were initially locked. Another way to look at it, when the futures were initially locked, the futures to cash premium was only 3.42 points, but when the lock was removed, the premium became 17.14 points.
Whenever the futures premium becomes large enough, the cash index (ie: individual stocks) will follow the futures price. This is because arbitrageurs are constantly looking for low-risk opportunities to spread between the futures and cash indexes (and a basket of individual stocks that represent the cash index).
Earlier in the week, the futures to cash premium was about 12 points -- this was considered "fair value". When the market was crashing and the futures premium was only 3.4 points, arbs were selling stocks as fast as they could buy futures to take advantage of the sharp discount. After the limit down when the futures resumed trading, the premium advantage sparked the arbs to buy stocks again to chase the futures.
While the SP futures were limit down, the arbs continued to play the game, but using the NDX and ND futures instead. When the ND futures resumed trading, the NDX was already in a recovery rally. But because there was a large premium, futures continued to be sold while the NDX cash index rallied. Once the premium got close to "fair value", the ND futures bottomed out and began to rally. Now that the NDX and ND were moving in the same direction, the premium stayed close to fair value and but rallied. Since the ND futures is not as heavily traded as the SP, it does not have the same clout to abruptly halt and turn-around the cash index.
So far, this does not offer much argument concerning manipulation... so here is the part that ponders the debate. If the cash markets were continuing to fall while the SP was limit down, at least theoretically, the futures price would have continued lower also had there not been a trading limit. Once a limit down is in effect, trading continues as long as trades occur at or above the limit down price. Thus, while SP was limit down at 1324.80, anyone can buy futures at that price as long as there are other traders willing to sell at that price. During the time the SP futures were limit down, over 1700 contracts were traded, of which 326 were traded immediately following the 2 minute trading halt. If the SPX cash continued to fall after SP futures were limit down, why were so many contracts being bought? 1700 contracts represent $563 million in S&P 500 stocks.
Basically what happened was there were traders that were attempting to sell SP futures at-the-market while it was limit down. Anyone that wanted to buy was able to get them at the limit down price. If you want to force the market higher after trading resumes, all you have to do is buy up all of the at-market sells. As soon as they are posted for a sell, the manipulator simply buys them. When the trading halt is lifted and trading resumes, if there are no outstanding sells, then the market is at an equilibrium. From this point, only minor buying is required to force the SPX cash index higher. The manipulators must be careful not to tip their hand and buy too many in this manner because that would cause the futures to trade above the limit down price while the SPX was still trading lower -- that would be sloppy.
This was a very minor manipulation, but engineered to be as "stealthy" as possible. And, it worked. |
