Category Archives: NYSE

Flash Crash Follies

Flash Crash Follies is a running tally of stocks that get ensnared by regulations as an outgrowth of the May 6, 2010 "flash crash."  While the explosive crash of stocks (either up or down) on the NYSE is a symptom to a bigger problem, we want to chronicle what was never reported to have happened before May 6, 2010.  Action packed moves in the price of stocks that will bring pleasure, pain and finally resignation at the state of the free market as we know it. 
We've added commentary from the mouthpiece of the NYSE or NASDAQ to explain away "erroneous" trades or canceled orders.  Before long we're going to hear politicians getting into the fray on specific "erroneous" trades.  What will this devolve into nobody knows for sure.  However, we're willing to bet that in due time, the treatment of the symptom will become a distinct problem of its own.

"...the folly of human laws too often encumbers its operations." Adam Smith

September 28, 2010 (date contains Bloomberg screen shots from third party source)
Apple (AAPL), Research In Motion (RIMM), IBM (IBM), Dell (DELL), General Electric (GE), Oracle (ORCL), Microsoft (MSFT), Hewlett-Packard (HPQ)
Stocks of the above noted companies took a dive at the same time on September 28, 2010.  The exchanges didn't provide commentary on the actions taken as a result of the instantaneous decline and rise in value.  many have attributed specific declines to "newsworthy" issues related to the specific companies.  However, no one has stepped forward to explain the statistical anomally of so many companies experiencing the same issue at exactly the same time.

July 29, 2010 (date contains article link from third party source)
Cisco Corp. (CSCO)
At 10:41am EST, Cisco (CSCO) shares spiked by 11% due to an order imbalanced triggered by 100 shares.  CSCO rose from $23.37 to $26 which triggered circuit breakers prompting Jamie Selway, managing director at broker White Cap Trading LLC in New York, “We’re stopping trading in incomparably liquid products because of dumb mistakes...”  In this instance, the NYSE-owned AMEX which handles very few trades in CSCO could not fulfill orders placed on their exchange even through there were plenty of shares being trades on alternative exchanges.  Ultimately, CSCO was trading with the liquidity of a penny stock.  Soon enough, firms with intimate knowledge of where they place their trade can play the illiquidity to their advantage.  The AMEX and other small exchanges will be under attack.

July 23, 2010 (date contains article link from third party source)
Genzyme Corp. (GENZ)
At 1:18pm EST and 1:25pm EST, Genzyme Corp. (GENZ) triggered circuit breakers when the stock attempted to rise by more than 10% on two separate occasions within the same day due to rumors about a takeover. Nasdaq OMX spokesman Robert Madden gave no justification for the halt in trading. However, traders and money managers expressed the sentiment that “at some point, you need to let efficient market theory rule how stocks trade.” In this case, Genzyme wasn't allowed to rise as much as speculators were willing to bid the price up.

July 6, 2010 (date contains article link from third party source)
Anadarko Petroleum (APC)
At 10:56am EDT to 11:01am EDT, Anadarko shares trade from $39.14 to $99,999.99. “‘We are still learning from the experience,’ he [Ray Pellechia] said.”
June 29, 2010  (date contains article link from third party source)
Citigroup (C)
At 1:03pm EDT, Citigroup shares trade from $3.80 to $3.3174 or down 12.7%. “The erroneous trade was subsequently canceled, NYSE spokesman Ray Pellechia said.”

June 16, 2010 (date contains article link from third party source)
Washington Post (WPO)
At 3:07pm EDT Washington Post stock trades from $450 to $919 or up 104%. All trades were cancelled. “‘What happened today was not due to a substantive, true move in the stock. It was simply an error,’ NYSE spokesman Ray Pellechia said.”
 
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Fannie Mae (FNM) and Freddie Mac (FRE) Fraud

In my article titled "Delisting of GSEs Looms Large" published on February 21, 2009, I discussed the fact that as Fannie Mae (FNM) and Freddie Mac (FRE) remained under $1, the prospects were that we'd either see the companies delisted from the NYSE or that the price would skyrocket. Not long after writing the article, the stock of FNM and FRE fell as low as $0.35 on March 9th. In that February article, I said the following:

"Look for a boosting of the share price to ridiculous levels (anything above $1) or go literally to zero in the next delisting notification process."

Soon after falling t0 $0.35, Fannie Mae and Freddie Mac briefly, on a closing and intraday basis, went above $1 on March 19th and then promptly fell from there. According to the New York Stock Exchange, spend six months under $1 and you get delisted. As strange as it may seem, September is exactly six months away from the month of March.

One reader of this blog, Ron, poignantly remarked, "...it seems to me the exchanges are constantly bending their own rules about delisting, extending grace periods, etc. Especially in this case the govt will probably be leaning on the exchanges not to delist." My response was, "...there is little need to do this (bend the rules.) If you're the government, and you don't know anything about fiscal responsibility, you'll more than likely feel compelled to waste the money and artificially inflate the stock price." Furthermore, I specifically stated that this was going to be "one of the biggest speculations in history."

Well, as promised, the U.S. government proved to be as gullibull as has been the case since the beginning of time. In an article titled "Fannie, Freddie Avoid Delisting as Price Triple" published by Bloomberg.com, you get the sense that there is a collective exhaling about the notification that the companies would not be delisted. Strangely, FBR Capital Market's Paul Miller seemed indignant at the thought that the Fannie and Freddie stock price went up. Miller, a banking analyst, said that the rise was "unjustified" and that there was "no fundamental value remaining" in the two GSEs.

I say to Mr. Miller (with tongue firmly in cheek), the threat of being delisted was a completely justifiable reason for Fannie and Freddie stock to go up in value. The government had already gamed the markets by reverse splitting AIG, so it would be challenging to commit the same fraud twice on the investing public in such a short time.

Also Mr. Miller, if Fannie and Freddie are delisted, the market for all bad mortgages cannot be absorbed by the taxpaying public through the GSE conduit. That means these two companies are incredibly valuable. Mr. Miller, maybe Fannie and Freddie are not valuable to you but they are definitely valuable to the banks that are receiving bailouts in the front door and dumping their trash on the taxpayer through the back door. Silly Mr. Miller, still talking about notions like fundamental values and such.

We have witnessed the all too familiar quality known as predictably irrational behavior of the government and the financial markets. In many respects, Ron was right, the rules were bent to favor those in powerful positions. When the NYSE says "The World Put Its Stock in Us," they should have also added that it is the best exchange that money can buy. After all, the NYSE should be held criminally for allowing such blatant fraud to reign on their exchange. Instead, they looked the other way in the face of clear manipulation and malfeasance.

It is just our luck that history repeats so well and so often in financial markets. This is the reason why the addressing of this matter of the delisting of the GSEs was so predictable. The maneuvers that I've described have happened so many times in the remote and distant past with far more inferior technology that it's laughable. The more things change the more they remain the same...and that ain't no cliche in the financial markets. Touc.

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