Regulators Wink As Markets Drop Once Again

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The financial markets are once again turning extremely volatile due to lack of regulatory control and supervision. Last Friday the S&P 500 recorded its worst performance in May since 1962, in an low volume trading environment which was possibly yet another engineered drop created by the bulk of market players who stayed away intentionally while few chose to execute the investors sell orders.

Only a fortnight ago on a balmy Thursday afternoon, the Dow crashed as Blue chips like Proctor and Gamble and Accenture took a free fall, due to some heavy selling in the market, to loose value worth $ 16 billion in one trading session. The regulators have still to find the culprits, and going by the track record of U.S. regulators, a smoke screen cover up job to shield the sellers of the scrips has been activated and its justification is being given by none other than SEC.

Volume trading on electronic stock exchanges can be consolidated into potential surge waves by the market players acting in unision to create peaks and troughs in any condition even without short selling.If sell contracts are executed in unision as in the case of the P&G share tumble, it will create in effect a market panic or a whirlpool, as the sell orders are very high bringing down the market sentiment. This in turn leads to the the uninitiated and uncommitted investors to sell bulk just to get out of the crashing stock market. The market players then pick up these investor shares at a fractional price to make a killing.

There is another benefit the market players derive out of panic sentiments. With the indexes dropping sharply, the political leaders get nervous and start discussing with the market players the effects of the financial reforms bill, thus putting intense pressure on the final draft of the much delayed legislation of financial reforms repeatedly. The drop this week lacked volumes as the investors probably decided to keep away taking lessons from the previous thursdays events.
The key question is why are the regulators silent.

Is it true that as Bloomberg columinst Caroline Baum says, the regulators in the US are too busy with "Babes, Bucks and Expense accounts" to do justice to their jobs. Can the Fed or the Treasury be expected to take up lead as their past record suggests that they are well and truly aligned with the Wall Street Banks. However some regulator of the SEC or the Stock exchanges has to step forward and give an explaination, why such precipitious movements are being permitted, removing circuit breakers and volatality marks, specifically inbuilt into the system to curb such rampant speculation.

The SEC explaination of the Thursday crash does not just wash. Anybody who has worked or even observed the operations of electronic stock exchanges and the market players whixh are mainly large institutions, banks and brokers know that such large price drops or surges cannot happen by chance. Each trading house have their guidelines, their reporting systems, the volatility marks, and the circuit breakers, and so has the exchange.

Nobody is dumb in the stock markets to watch the market to sink by $16 billion
in one trading session without making money out of it. If there were only sell orders executed during the period of the downslide it was not because there were no buyers, but because the players were acting in unision as a cartel, to create volatility. If steps are not taken to curb this volatility, then it possible that another large market crash will soon be engineered on the 2008 scale. This would be the attempt to wrest back control firmly by the Bank lobby, and junk or slow down the financial reforms bill.