Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Crash Edition - 26th Mar 19
Handy Ways to Boost Your Home Income - 26th Mar 19
US Treasury Bond Yield Inversion and Political Fed Cycles - 26th Mar 19
Golan Heights Oil all about the Shekels - 26th Mar 19
Falling Yields a Catalyst for The Gold Catalyst - 26th Mar 19
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

U.S. Market’s Stub Toes As Greece Debt Fear Spreads

Stock-Markets / Financial Crash May 07, 2010 - 08:01 AM GMT

By: Brady_Willett

Stock-Markets

Best Financial Markets Analysis ArticleI’ll be the first to admit that I do not know how the Greece debt crisis/saga will end.  What I do know is that when the rating agencies first warned on Greece’s debt back in December this should have been when policy makers urgently started to develop contingency options (assuming some were not already in place). And while delaying any bailout may well have been a ploy to squeeze as much cooperation from Greece as possible, it is clear with panic spreading from the debt markets to the equity (and countless other) markets that this tactic has been played in full. The 16 euro-zone leaders are meeting today to try and finalize Greece’s bailout and stop contagion.


For his part, ECB President, Jean-Claude Trichet, said yesterday that the bank was not discussing the possibility of purchasing eurozone government debt – “We did not discuss the matter. I have nothing more to say on it”. If Mr. Trichet’s intentions were to frighten already spooked investors, bravo!, although Trichet may have done well to remember how quickly Treasury Secretary Paulson backpedaled when he tried to draw the bailout line in the sand with Lehman (it took 2-days before AIG arrived).

“Either the governing council is guilty of gross dereliction of duty, or the ECB is treating journalists and analysts as ignorant children”. Lombard Street’s Gabriel Stein

Suffice to say, it is definitely time for all parties concerned to realize that the 11-year old experiment that is the Euro is unlikely to last another 11-years without dramatic changes.  With many looking for a Greece default/debt restructuring in the years ahead and the reality that any future bailouts efforts could be considerably larger than Greece, exactly what ‘changes’ are required to keep the euro intact are not known at this time…

Stub Quote Nonsense Not Stubby Fingers

One of the first explanations of yesterday’s dramatic plunge in the U.S. markets was that a trader pressed ‘B’ instead of ‘M’ (igniting the sale of a billion+ shares instead of million+ shares in, reportedly, PG). This theory, while still being investigated, does not explain why Accenture Plc, Exelon, and Philip Morris each declined by more than 90% and why the Nasdaq has cancelled trades in hundreds of stocks that crashed by 60% or more.

Common sense suggests that regulators should have quick access to exactly who, or what, was doing the selling as stocks plunged and/or why certain pockets of the market were seemingly completely bereft of any buying. Moreover, if the regulators do not have immediate access to this information the question becomes, why not? Perhaps the SEC will file another lawsuit to divert attention away from its ineptness on this front. After all, it was arguably the SEC that was at least partially responsible for the severity of yesterday’s meltdown:

“Rapid-fire orders trigger what the NYSE calls liquidity replenishment points, or LRPs, shifting the market into auctions. While the system is designed to restore order on the Big Board, trading is so fast during times of panic that orders routed past the exchange may swamp other venues and exhaust buy orders....

That’s when prices may plummet as orders execute against so-called stub quotes from market makers. Brokers can set the quotes as low as a penny a share because they’re never expected to be used.”


And why are stub quotes, which are never expected to be used, placed at all? Because market makers need to deploy such bids to comply with rules and requirements. In the case the Nasdaq, before it filed to relax the rules (SEC filing) a market maker had to maintain quotes that were “reasonably related to the prevailing market”. This is no longer the case and, as TheStreet reported back in August 2007, there have been instances when both the Nasdaq and NYSE Arca both cancelled penny per share trades in an illiquid market (i.e. Comfort USA in August 2007).  It may be a stretch to conclude that regulators made a big mistake by allowing ‘stub quotes’ to take the place of reasonable market making: tighter spread alone may not have prevented yesterday’s debacle. However, the question of whether market makers are trying to make markets or manipulate markets has always been around, and deserves to acquire greater attention thanks to the stub quotes issue.

While stub quotes help explain why ridiculously low bids were in place, they do not explain why anyone/thing was dumping stocks at such low levels.  Attempting damage control, NYSE Euronext Chief Operating Officer, Larry Leibowitz, told Bloomberg that the ‘selloff snowballed because of orders sent to venues with no investors willing to match them.’ What Mr. Leibowitz neglected to mention is that if no ‘matching’ took place stocks would have simply stopped trading. We know this was not the case.  Rather, and as Mr. Leibowitz concedes, someone or something continued to trade even as chaos took over:

“Electronic markets actually traded all the way through the slower New York Stock Exchange markets where we were trying to slow down trading.”


Drawing on the stub hub hits and lighten fast wave of sell orders, many have speculated that computerized trading was to blame. Perhaps the computers, which are not capable of panic, were informed to place sell orders as low as a penny simply because they’re never expected to be used...

Worry not! If history holds the SEC will get to the bottom of things, debate the matter for a decade or so, and then proclaim that market makers must maintain quotes that are reasonably related to the prevailing market. Until then the manipulation market making many investors have come to know and love persists, and will probably continue to do so for a lot longer than the euro experiment.

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules