Hi TJ, This is fitting as you were the one who first brought the 990N story to the board....
M. Ramsey King Securities, Inc.
Tuesday’s missive mentioned that the hedge fund community was circulating notes about Gelber’s activity in the S&P futures. Yesterday a trader purporting to be one of the largest S&P traders posted a blog on the Prudent Bear chat room that gives details of alleged manipulation of e-mini S&P futures contracts. The post also alleges that the poster and his firm have reported the alleged scheme 3 times to the CME. Here is the post and the nefarious details:
Please recall that over the past several months there have been several occasions when a sudden market movement had been explained as ‘an e-mini futures error’.
Some institutional traders commented to us that there has been much grumbling about ‘the e-mini bandit’ but no one knows what is really occurring.
We did some sleuthing and discovered that allegedly there is a young trader who not long ago was a house painter. Anyway the youngster allegedly quickly made millions of dollars trading e-minis. However rumor has it that he has given back plenty.
Perhaps this is all sour grapes; perhaps not. Let’s see what the CME and regulators do.
The episode has futures traders recalling the purported Nasdaq 100 futures scandal at the height of the tech bubble. The July 26, 2000 Chicago Tribune reported the story. Our sources allege that a broker was tipping off ‘buddies’ in the crowd via pagers about his order flow. A buy order would ring a pager in a particular pocket; a sell order would ring the pager in an opposite pocket. The traders would then front run the order. Bridge News also did a story on it. This prompted a letter from some Congressmen to the CFTC and the SEC about the allegations. Here is the beginning of the letter and the link:
August 3, 2000
The Honorable William J. Rainer Chairman Commodities Futures Trading Commission Three Lafayette Centre 1155 21st Street, N.W. Washington, D.C. 20581
The Honorable Arthur Levitt Chairman Securities and Exchange Commission 450 5th Street, N.W. Washington, D.C. 20515
Dear Chairmen Rainer and Levitt:
We are writing with respect to recent press reports regarding alleged illegal frontrunning of customer orders or other unscrupulous trading activities on the Chicago Mercantile Exchange (CME) (see Kristina Zurla, "CME to Make Sweeping Changes to Volatile Nasdaq Contract Aug. 1," Bridge News, July 13, 2000; Mary Haffenberg, Jamie LaReau, and Kristina Zurla, "CME Rumors Escalate of Nasdaq Front-Running Buzzer Scam," Bridge News, July 24, 2000; and Melissa Allison, "Allegations of Improprieties Could Hinder MERC’s Future," Chicago Tribune, July 26, 2000).
According to these press reports, traders at the CME Nasdaq 100 stock index futures pit may have illegally front-run customer orders by using a system of vibrating pagers in their pockets to alert them to large impending institutional buy or sell orders. According to these reports, this information would then allow the trader to enter the market ahead of the institutional order in order to profit from the inside information they had about the impending order. These same press reports suggest that inquiries may have begun into these frontrunning activities as well as other unspecified allegations of fraudulent or unscrupulous trading practices.
How many of you where aware of the Nasdaq 100 allegations? And as far as we know and others tell us, there was no disciplinary action. We’re told the broker at the center of the allegation retired with his $$.
Yet Easy Al, the Speculators’ Pal, consistently inveighs against regulating hedge funds and other instruments of speculation. Of course this allows Easy Al, with the assent of the BoJ and BoC, to control and manipulate financial markets. And they are the new economy. Al has little of no control over manufacturing or tech. But as long as the BoJ and BoC keep the dollar buoyant and long rates unwarrantedly low, Al is the major domo of US financial engineering.
Dr. Irwin Kellner, econ prof at Hofstra on CBSMarketWatch.com: "The annual rate of increase in the consumer price index since February works out to 5.5 percent -- the most for the CPI in any three-month period in 13 1/2 years. Which is to say, you have to go back to November 1990 before finding a bigger burst of inflation over a three-month period. One step back in the production and distribution process, the producer price index, tracking wholesale-level inflation, is also stirring. The 12-month rise in finished goods prices through May is the most for any such period since December 1990….Against this backdrop, you'd expect Greenspan -- being the consummate numbers man -- to pounce on this nascent uptrend and nip it in the bud. You'd be wrong. The bottom line: Raising rates sharply at this time could cause more problems than it solves by hurting households and bursting the housing bubble." http://cbs.marketwatch.com/news/story.asp?guid={E2F65345-DF22-49C4-A90E-A5CA2347B7D8}&siteid=mkt....
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