Meanwhile in a Phony Stock Market Controlled by Bernank, AAPL Flash-Crashes Intraday

Here's the intraday chart of Apple (AAPL). Just gradually drifting after all-time high of $360, the stock suddenly flash-crashed.


From Fortune:

Something happened to Apple's (AAPL) share price Thursday afternoon that has investors still scratching their heads.

The stock, which had been sailing along near its all-time high of $360 a share, started to drop at about 1 p.m. Then, at 1:39, it collapsed, falling from $355 to $349 in the space of four minutes.

..."The selling is not normal just for negative news," wrote Bullish Cross' Andy Zaky in an e-mail. "There was a huge spike where dollars were being skipped in the selling. I saw Apple tick from $351.70 to $349.00 within seconds. There's something else. The selling was not normal. That's for sure. It wasn't orderly. Take a look for yourself."

The Fortune article cites rumors that Steve Jobs is back in the hospital, but according to this Wall Street Journal article, he seems to be just fine.

'Ts the bots, algo bots...

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GM IPO's Market Maker Is a Chicago-Based HFT Firm

To me, it somehow perfectly captures the state of the financial market today.

GM, aka Government Motors, will have its post-restructuring IPO on Thursday. US taxpayers were forced to pay for the rescue and restructure, and a Chinese auto company backed by the Chinese government is set to acquire a chunk of the new GM shares.

The designated market maker to ensure the IPO runs smoothly is a Chicago-based firm, Getco, one of the largest high-frequency trading firms in the US (and probably in the world).

Getco has been busy doing the "regulatory capture", hiring ex-SEC officials, ex-Federal Reserve officials, even the ex-SEC chairman.

As Zero Hedge's Tyler Durden says, the Obama government is doing its best to make sure that "the worst IPO in history, that of Government Motors of course, will not be DOA."

Who's more suited than the HFT firm for that purpose, to buy and sell and buy and sell about 5000 times per second to provide "liquidity"?

What a joke.

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SEC Does Blame a Kansas Firm of Causing the Flash Crash

to the collective belly-laugh in the financial blogsphere and stock message boards.

Move on, nothing to see here, and those HTF algo bots are innocent.

(Who do they think they are kidding? Oh I see, themselves.)

Here's the SEC's report (the SEC staff managed to concoct a 100-page report in between porn viewing), and here's the initial take by Zero Hedge.

(The SEC would dare not point fingers at New York, Wall Street firms, would they?)

The stock of that Kansas firm in question, Waddell & Reed, is trading at $27.45 right now, up 9 cents for the day.

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SEC About to Blame a Small Trading Firm in Kansas for May 6 Flash Crash

Yeah right. No mention of High Frequency Trading, no mention of quote delay in NYSE.

I read the article on Bloomberg, and was about to write a post.

Zero Hedge beat me to it:

Bloomberg has just released something which if true, will wipe out every last ounce of credibility left in the market. As readers will recall, the initial scapegoat that CNBC and everyone else, who has no clue what really happens in the market decided to pin the flash crash on, was small Kansas-based trading firm Waddell & Reed, which traded a few extra contracts of E-Mini futures in the hours preceding the flash crash. Well, ladies and gentlemen, if this advance glance into what the SEC is about to disclose in its flash crash report is indeed valid, then the entire flash crash is about to be blamed on Waddell and Reed once again, with no mention of High Frequency Trading, or any of the other real culprits for the drop which wiped out $1 trillion in market cap, and the furthermore the report will have no policy recommendations. This is so insulting to the general intelligence of the average American investor who has by now seen the destructive influence of HFT in action so many times, that it will wipe out the last remaining shards of credibility left in US stocks. Will Mary Schapiro next blame every single mini flash crash which we have seen on almost daily basis over the past month on Waddell and Reed as well? Or is that reserved for E-Trade retail accounts? We will not pass judgment until we see the final report, but if true, this is immediate grounds for termination of the SEC head, and will require that everyone pull their money from the market asap, as it will definitely confirm that even our regulators have no clue just how broken the market truly is. It will also confirm that every single SEC staffer has been bribed, bought and corrupted beyond repair by the HFT lobby.

In case you haven't caught on yet to what really most likely caused the flash crash that clearly triggered the 21 consecutive weeks of outflow from equity funds, here it is.

Will HTF algo bots walk scot-free? Where will they go next? Someone at CNBC thinks it will go to CDS market, which is currently OTC but will be forced to move to exchange trading and clearing under the new financial regulation bill, and it may not be a pretty sight:

Let's imagine, however, what a flash crash might look like in the CDS market.

Let's say high-frequency traders have become liquidity suppliers to the market, buying and selling bond protection. The broker-dealers have stopped providing this liquidity, in part because their profits have been squeezed out of the market by the new transparency. One day, an event somewhere in the world triggers the algorithms of a few highly correlated HFT shops to start buying more protection on a wide variety of stocks.

This triggers other HFT programs to stop selling, which triggers more buying. Prices on CDS soar across the board. The clearing houses start demanding more collateral from everyone to reflect the higher prices, triggering a rush for cash by everyone participating in the market.

Meanwhile, the risk management operations of institutional investors detect the soaring CDS prices, which are read to signal that the bonds are about to become distressed. The corporate bond market sells off and even more buyers for CDS enter the market. The short-term credit markets freeze up as money market funds stop providing credit to what look like increasingly risky corporate borrowers.

And then the clearing house notices that some market participants aren't making good on the collateral calls, so it starts closing out their positions. Outsiders get wind of this and begin to doubt the solvency of the clearing house, triggering a run on the clearing house itself. With no one able to process trades through the perhaps insolvent clearing house, and all other alternatives have been declared illegal by Dodd-Frank, the credit markets seize up completely.

The next thing we know, we're all hearing about emergency meetings down on Maiden Lane, where bankers and regulators are putting together a plan to fend off the next Great Depression. The plan is elegant and its proponents are articulate and highly adroit at defending it against critics. It involves the transfer of risk from the private market participants to the taxpayers. It is, in short, another bailout.

Can we handle a flash crash in the bond market? Are we prepared for a freeze in derivative clearing? Has anyone even asked these questions?

But what the heck, as long as the gullible taxpayers exist....

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Clampdown on HFT by FINRA?

Zero Hedge reports (citing the article in Financial Times):

"It couldn't happen to a nicer group of pirates. After a year-long campaign by Zero Hedge warning about the ongoing threat to market structure by the HFT plague, culminating in a the May 6 crash, whose incipient conditions exist to this day, the FT reports that the even more worthless regulator, FINRA, is beginning a clampdown on broker dealers who allowed high-frequency traders to have access to the markets without undertaking proper checks. As this means all of them, there is about to be a huge change in market structure as arguably more than half of the market "participants" are suddenly excluded from constant daily churning activity. What the outcome of this will be is anyone's guess, but definitely expect strange things if this is truly a first step towards reverting to some form of normalcy.

"The FT reports:

The Financial Industry Regulatory Association is undertaking a “sweep” of broker-dealers that offer market access to high-frequency traders to find out if they allowed these firms to run computerised trading programs – algorithms – without undertaking proper risk-management controls.

“We’re looking to find out if the brokers understood what was being done with the algorithm and whether the high-frequency trader had thought through how it would work under big market changes,” Richard Ketchum, chairman and chief executive of Finra, told the Financial Times.

Brokers also face scrutiny of their checks on the ownership of the firms they allow – directly or through sponsorship arrangements – to access the markets.

“The brokers should be satisfied they know who’s really operating these systems,” Richard Ketchum, chairman and chief executive of Finra, told the Financial Times. “The sub-custodian chain can bury the identity of high-frequency traders in Eastern Europe and elsewhere who raise serious regulatory concerns.”

"And you thought those pesky Eastern European were only responsible for reverse engineering any softward that ever came out and movie piracy - guess what: it turns out they now can just as easily hack the entire market too. And now please put back all your capital in stocks.

"Nonetheless, this is a market test run by a US regulator: an entity better known for being the most corrupt organization in the history of the world. As such some may be skeptical.

The probe will at the very least lead to tougher guidelines. “You can expect something to come out of it,” Mr Ketchum said. “Certainly, there may be enforcement actions if we find serious cases where brokers have failed to even try to exercise their obligations to run checks on the firms before allowing them access.”

"That's ok, Finra. We will constantly remind you, and your just as worthless and corrupt porn-loving cousin, the SEC, of just how worthless and corrupt you are until you actually put the investing retail public's money where you mouth is for once. Although it appears that at the rate retail is leaving the market, the system will fix itself and promptly blow up, once algos are left trading with just each other and the whole thing collapses like the binary ponzi scheme it is."

You tell them, Tyler.

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