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Recent Market “Events”

If like me you have become puzzled by the recent Market “events” you should find this excellent article sent to me to-day helpful

Recent Market “Events”

Following quite a number of requests from students and clients this brief will deal with my understanding of what transpired last Thursday the 6th. May when just after 2.30 PM the Dow Industrials collapsed by nearly 10% and then suddenly recovered in 11 minutes.

The implications of what occurred are far reaching and unless the regulatory issues are resolved we can expect similar “events” of like nature.

In the main to comprehend the situation in the “Market” one must realise that there are now many markets. In the good old days, in America, all we had was the New York Stock Exchange where real people dealt with real market makers in real time. But computers in general and the internet in particular have changed all that. In addition as well as the “public market” we now have the (OTC) Over the Counter Market. The OTC is basically a private market between banks and large institutions which has little or no active supervision. I find this development strange because the trading activity on the OTC is 60 trillion dollars annually, while turnover on the public market is 5 trillion. Now in addition to public markets and private markets let us now bring in “Dark Pools” to our explanation.

“Dark Pools” What are they? ” Dark pools of liquidity” are crossing networks that provide liquidity that is not displayed on order books. This situation is highly advantageous for institutions that wish to trade very large numbers of shares without showing their hand. Dark liquidity pools thus offer institutions many of the efficiencies associated with trading on the exchanges’ public limit order books but without showing their actions to other parties. This is achieved because neither the price nor the identity of the trading entity needs to be displayed. Many of the OTC “exchanges ” used by the dark pools use high frequency trading programmes to minimise order size and maximise order execution. Now you may think that this manner of doing business on the “stock market” is carried out by minor unknown entities but this is not the case. Below I list the Independent dark pools, the broker-dealer dark pools and exchange-owned dark pools.

Independent dark pools: Instinet, Smartpool, Posit, Liquidnet, Nyfix,Pulse Trading, RiverCross

and Pipeline Trading.

Broker-dealer dark pools: BNP Paribas, Bank of New York Mellon, Citi, Credit Suisse, Fidelity, Goldman Sachs, Knight Capital, Deutsch Bank, Merrill Lynch, Morgan Stanley, USB, Ballista ATS, BlocSec and Bloomberg.

Exchange-owned dark pools: International Securities Exchange, NYSE Euronext, BATS Trading and Direct Edge.

When you understand that all the big players in banking and finance are using the OTC system and have a turnover 12 times that of the “public” markets you get to wonder why there is a New York Stock Exchange at all. Well you see there is a big difference between the OTC “private” market and the NYSE “public” market. The NYSE is comprised of market makers. These market makers are specialists who are obliged to buy and sell on their own and the publics’ account to create a liquid active market. The OTC market faces no such obligation. Over the past number of years attempts have been made to abolish the specialist role and remove the “human” engagement.

What happened on Thursday was the high frequency OTC trading programmes

created “trades” which did not make sense to the NYSE specialists. Accordingly the NYSE stopped handling orders so that the situation could be analysed. The OTC computerized networks then began rerouting orders to other “markets” and with no “public” markets participating prices collapsed through sell stops and the rest is history.

There are many lessons to be learned from this event. But for me the main question is whether a “market” that is only 8% “transparent” is actually a market (5 trillion as a ratio of 60 trillion). Going forward it is obvious that additional “circuit breakers” must be brought in to modify the exchange activity of high frequency dark pools. Whatever the eventual fallout from last Thursday’s events are it is clear that the issues I have touched upon are only the tip of the iceberg and any trader or investor worth his salt must reflect upon what happened and adjust his or her strategies appropriately.


we need reform now!

The current Irish Government are responsible for the financial disaster the country is in,
With the establishment of NAMA the Government is trying to socialize the enormous losses that the Banks and their Developer buddies have encored.
Corruption is rife and now a new monster burocratic system is being created, where X politicians will have jobs for life and the same corrupt developers will be able to manipulate the housing market all over again
While the people are being robbed of their homes, savings, pensions, and education for their children, that same gangsters are running the country
This has to stop!
Join the CAB to-day and get things moving
Come on! Get active in your own area now!
We as a country need new faces and not the same old tired faces that have being around using the system to suite themselves.

Bankers – gobbledegook!


سيتي جروب (جيم 3.24 ، +0.06 ، +1.89 ٪) ، لدينا أموال دافعي الضرائب التي تمولها البنوك الوطنية ، وتستعد لابرام الائتمانية الجديدة المشتقة ، وCLX. أساسا ، وCLX هو التأمين ضد المخاطر النظامية التي من شأنها أن تدفع في حال حدوث أزمة مالية. والفرضية الأساسية هي السماح للمستثمرين للتحوط من ارتفاع حاد في تكاليف التمويل.
وفقا لمجلة المخاطر “في CLX هي التي شيدت على شكل مبلغ من نسبة شارب — الانحرافات عن المتوسط مقسوما تقلب — عوامل السوق المختلفة ، مثل التقلبات الإنصاف ، ومعدلات وزارة الخزانة ، ينتشر مبادلة سندات الشركات swaption – ضمني التقلبات ، وينتشر الائتمان المهيكل. سيتي سيجعل CLX القابلة للتداول عن طريق استخدام قيم ثابتة تاريخية لتقلب يعني والمعلمات ، مما يلغي الحاجة لrecomputation مكلفة سلسلة طويلة من الوقت





Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c (C
3.24, +0.06, +1.89%) , our taxpayer-funded national bank, is readying a new credit derivative, the CLX. Basically, the CLX is systemic risk insurance that will pay out in the event of a financial crisis. The basic premise is to allow investors to hedge against a spike in funding costs.

According to Risk Magazine “the CLX is constructed as a sum of the Sharpe ratio — deviations from the mean divided by volatility — of various market factors, such as equity volatilities, Treasury rates, swap spreads, corporate bond swaption-implied volatilities, and structured credit spreads. Citi will make the CLX tradable by using fixed historical values for the mean and volatility parameters, eliminating the need for costly recomputation from lengthy time series

which one of these do you understand ?

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