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2010-05-13 10:32:16
By Daniel Trotta Daniel Trotta Tue May 11, 3:31 pm ET
NEW YORK (Reuters) "Fat finger" has company.
The initial theory that an errant trader caused Thursday's mysterious stock
market plunge isn't the only dubious hypothesis making the rounds.
Commentators and conspiracy theorists -- whether just joking or trying to raise
mischief -- have cast the blame far beyond the investment community, even
naming extraterrestrials and North Korea.
As long as the origin of the rapid, near-1,000-point drop in the Dow
industrials remains unexplained, rumors and wild speculation will thrive.
A big U.S. exchange operator said on Tuesday there was no "smoking gun" to
explain what happened, while regulators and exchanges solidified plans to adopt
circuit breakers to prevent a reoccurrence.
At first the markets were quick to blame a "fat finger," in which a trader was
said to have sparked the rout by mistakenly inputting a massive sell order.
The theory, perhaps because of an obvious association with "fat cat" bankers,
seemed to become an allegory for Wall Street Gone Wild. Fat finger was an easy
target for people who saw their retirement funds shredded by the financial
crisis and then bailed out bonus-collecting bankers with their tax money.
The only problem is that the theory has been largely discredited. Investigators
are now looking for intentional trades that may have set off a selling frenzy
by computerized, high-volume trading operations that account for at least half
of stock market liquidity in the United States.
A congressman from Pennsylvania contributed to the parlor game with a quip on
CNBC television.
"I don't want to cause any panic or fright, but it could be anywhere from a
cyber attack to an alien invasion to just stupid programing," U.S. Rep. Paul
Kanjorski said.
For true believers in the most irresponsible conspiracy theories, there's
always the North Koreans.
A blog item being replicated on the Internet postulates that the sell-off may
have been prompted by reports that a North Korean strike force was responsible
for the oil spill in the Gulf of Mexico.
Why stop at just one conspiracy theory? The blog also suggests the United
States ordered a "complete media blackout" about the supposed strike.
On the more serious side, The Wall Street Journal on Tuesday examined a trade
in the Chicago options markets.
But even that theory has its intrigue because it involves hedge fund Universa
Investments LP, which is advised by Nassim Taleb, author of "The Black Swan:
The Impact of the Highly Improbable," a book that attempts to explain rare
events.
Universa placed a $7.5 million trade for 50,000 options that may have briefly
hurt stock prices, leading traders on other side of the transaction to place
sell orders in order to offset some of the risk, the Journal said, citing
unnamed traders in Chicago.
That could have led to even more hedging sales, triggering even more
computer-generating trading. At that point high-speed trading firms pulled out
of the market, creating a void of buy orders that allowed some securities to
free fall.
Or maybe the space aliens were just shorting the market.
(Reporting by Daniel Trotta; Editing by Richard Chang)