Tuesday, May 11, 2010

900+ point plunge=domestic terrorism?

The Wall Street Journal online edition had an article recently describing the meeting between all the major exchanges on Monday regarding new trading rules for circuit-breaker or stock-halt systems. The articles discussed the proposals for making arrangements between exchanges-that are competitors let's not forget-when stocks trade in ways that make us too nervous to breathe.

Under the article in the comment section was a comment that claimed that the banks created the freefall in stock prices intentionally in order to influence the vote on the Brown /Kaufman amendment to the financial reform bill. The Brown/Kaufman amendment would limit the size of banks. If passed, it would force current ‘oversized’ banks, with assets of over $100 billion, to sell off branches to smaller banks. The purpose of the amendment is to prevent banks from not only getting too big to fail but also to prevent the abusive and predatory behaviour of large banks. Of course, this was not a popular amendment among banks.

The vote on the amendment, held suddenly and late in the evening of May 6th, was 33-61 against. The amendment failed to be adopted.

I liked the idea that the banks created the plunge to send a message to Congress. It is very mafia-finding a horse head in your bed-kinda thing. We cannot really know how the plunge was precipitated until everyone finishes their CYA manoeuvres.

Tuesday May 11, some stock exchange heads along with SEC Chairperson Shapiro will testify before the House Financial Services Capital Markets Subcommittee. They will talk about what happened and the agreement the big exchanges have come up with regarding circuit-breakers stopping plunges in the future. Some of this may result in some interesting trading rules changes and we can delve in to those as they are revealed. Maybe we can hear a clear explanation of how it all happened in the first place. Fat fingers or Fat Tony??

Also, the financial reform bill with all of its amendments is predicted to be passed by June. Once all the wrangling is over it will be fascinating to read what our fearless representatives have come up with to protect us from….whatever happened to us in the past few years.


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