“According to Mr. Duffy, there were 1.6 million (yes, million) contracts traded in the E-Mini S&P 500 in the pivotal hour of 2:00 to 3:00 p.m. New York time. Each E-Mini trades at 50 times the level of the S&P 500 futures price. At 1100 on the S&P, that would be $55,000 per contract or about $88 billion (yes, billion) in one hour, an astonishing amount.
Last week Reuters leaked an internal document from the CME showing that Waddell & Reed has sold 75,000 contracts during that period with the suggestion that it might have triggered the plunge. The idea that this tiny Midwest mutual fund firm pulled something over on the Wall Street bad boys is specious at best and an intentional distraction at worst. If the report is correct, Waddell & Reed’s contracts represented 4.7 percent of those traded in that hour.
The Senate Banking Committee’s Subcommittee on Securities, Insurance and Investment is slated to pick up where the House left off this coming Thursday from 10:00 a.m. to 12:30 p.m. Hopefully, the Senate will probe the issues raised above, along with the following:
During the House hearings, no mention was made of the fact that three of the largest market cap stocks in the S&P 500 suffered losses far in excess of the overall market decline on May 6, raising a strong warning sign of potential manipulation.
The S&P 500 is weighted by the market capitalization of the individual stocks. Market capitalization is the share price times the number of shares outstanding. The impact of a price change in the S&P 500 index is proportional to significant price changes in the stocks ranking highest in market cap weighting. (Big price declines in a handful of the top tier stocks can crater the market index.) Apple Computer, GE and Procter and Gamble all fall within the top 10 component stocks of the S&P 500 and each of these stocks appears to have been targeted for excessive selling by some entity or algorithmic program on May 6. Sharp price declines in these pivotal stocks in the cash stock market quickly transmuted into selling in the futures market, creating a frenzy in the highly leveraged Chicago futures pits.
According to Standard and Poor’s website on May 14, 2010, Apple Computer ranks number 2 in importance in the S&P 500; GE ranks 4th; Procter and Gamble ranks 5th. At the worst point in the market, Apple had declined by 21.5 percent; GE by 16.6 percent; and Procter and Gamble by a whopping 36 percent. The overall market at its worst level had declined by only 9.2 percent. (3M dropped by 21 percent at its worst point but does not rank in the top 10 of the S&P by market cap.)
Before our so-called fair and efficient markets become the brunt of jokes on more comedy shows around the globe, the Senate needs to stop trying to legislate reforms in the dark and get to the bottom of just how rigged Wall Street really is.”