The big news event, of course, [was Tuesday's] joint filing of civil charges by the CFTC and criminal charges by the Justice Department against a London trader for his participation in the infamous “Flash Crash” in the stock market on May 6, 2010. That was when the Dow Jones Average fell 1,000 points in a very short period of time before recovering almost as sharply. Yesterday’s filing places much of the blame for the crash on this London trader who “spoofed” the market, by entering and immediately canceling large orders on stock index futures contracts whose prime intent was to manipulate prices. (I suppose he’s not the one spoofing prices lower in COMEX gold and silver today, Wednesday, but someone certainly is).
According to Eric Hunsader, from the market data company, Nanex, “I’m dumbfounded that they missed this until now.” After watching the agency’s handling of the increasingly obvious silver manipulation, I’m less surprised and I am left with the feeling that the evidence provided by the unnamed whistleblower must have been overwhelmingly convincing for the CFTC to change its tune so radically.
I am not at all surprised at the article’s negative portrayal of the role of the CME in this matter. The article quotes the London trader, in an e-mail more than four years ago, as having told the exchange who was inquiring into his activities, “to kiss my ass.” I’m sure that wasn’t what took the CME so long to crack down on the trader, since there is no evidence the CME ever cracked down on him. The CME hasn’t cracked down on High Frequency Trading, no matter how egregious it has become for the simple reason it is the greatest beneficiary of the mindless and manipulative trading in the form of exchange fees. The CME is the prime promoter of HFT. That’s the problem with self-regulation when the regulator is a beneficiary of the manipulative trading – it will never be ended by the conflicted regulator.
The irony, of course, with the charges of manipulation in the stock market that occurred five years ago is that the same manipulation is occurring in COMEX silver and gold today [Wednesday – Ed] as I write this. As I’ve written previously, the HFT computer jocks have been careful not to trip off another stock market crash because they know it will not be tolerated. But because both the CFTC and the CME have openly signaled that high speed computer manipulation is OK in COMEX silver and gold, the manipulative practice has actually intensified. Whereas crashing the stock market damages too many investors, the number of investors hurt in the silver manipulation is so small in comparison that the CFTC and the CME look the other way. Th at's the way these regulators swing – they only do what they are forced to do.
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