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990N Update

John Mackenzie
Jun 24, 2004

Yesterday I discussed the possibility of a rogue trader being behind the action in the S&P Emini's with a large trader of these contracts. He confirmed what I had been told by a number of sources both on and off the floor: "Igor" had been making a fortune collaring the market since November of 2003.

This trader accounts for 20% of the volume in the S&P Emini's. Many traders I have spoken with believe this trader, now a group of three to four traders have somehow figured out the interventionist's game plan and are actively trading in lock step with it.

Others believe this "rogue" trader is the market, I can assure you, that is not the case.

Although the trading pattern suggests collusion on the part of the CME and large institutions that make up the balance of the volume, no one has seen fit to address the illegality of this activity, other than to suggest it is currently "under investigation."

Many traders have suggested there is an active "linked bid" with very large order depth behind this trader to support their ongoing activity. This is confirmed by both sides of the order queue whereby orders placed are moved throughout queue and re-assigned placement. The depth of bid/offer is very large.

Large Institutional trading Firms, such as ABN Ambro, given an opportunity to blow this trader up, could do so in short order, Yet the attempt is never made. An exogenous event would send this trader into in excess of a $500,000,000.00 loss in short order.

Collusion is apparent as trades continue to cross daily:

Message From: GLOBEX Control Center:

Effect Date: Wed May 19, 2004 07:40 am CST
Message: Recently, questions have been raised about the rules which apply when individuals trade opposite their own orders on the GLOBEX(R) system.

CME Rule 432.G. ("Major Offenses") states that it shall be a major offense "to act as both buyer and seller in the same transaction." With respect to GLOBEX trading, this rule prohibits any person entering orders into the system from intentionally trading opposite their own bids or offers. Similarly, the rule prohibits any account owner from directing that bids or offers for his or her account be entered into GLOBEX with the intent of trading opposite one another. However, this restriction does not apply to individuals entering independently initiated orders on opposite sides of the market for different beneficial account owners that did not involve pre-execution discussions. In electronic trading, it may occur that an individual trades opposite his or her own order by accident. If this happens more than occasionally, it is recommended that the situation be reported to Market Regulation, along with an explanation of the reasons for the transactions. Generally, unintentional cross trades of this type will not be considered violations of Rule 432.G.

However, if such trades occur frequently without explanation, or if they cause price or volume aberrations, other rule violations may be involved.

Traders who engage in frequent changing of bids and offers are encouraged to use front-end functionality which automatically cancels orders at a price when the market maker enters new orders on the opposite side of the market at that price that could potentially be matched with the their own order.

Should you have any questions, please contact Jim Moran at 312.930.8520, Eric Wolff at 312.930.3255, or Bob Sniegowski at 312.648.5493.

One of the more telling conversations I had this morning was with a trader who had his limits raised to call 990 on their manipulation and was instantly handed their head and $750,000.00 in losses.

I have discussed the scope and depth of pockets required to maintain this ongoing manipulation and traders believe there is massive collusion between the exchange and certain member firms masking trades for the ESF/Working Group on Financial Markets.

The CME has set about making phone calls to traders who have commented on this matter, suggesting it would be very bad for business were this allowed increase in din. After having no comment on the matter, the matter is under investigation and has the attention of compliance.

I suspect, as I have said all along, the malfeasance will simply spread far and wide. The actual level of liquidity is this intervention and transitory in nature. The market is far too large to allow one trader accounting for 20% of the volume to corner the S&P Eminis.

The S&P Emini is being collared and moved in lock step daily by several parties through linkages in the order queue, the ongoing pattern is the same every day. the market is being controlled and those with winning hands on the short side are losing when asserting their positions. This activity is clearly draining liquidity from the market, yet support exists on the long side.

We have not seen a 2% down day in the S&P in 276 trading days, this is unparalleled.

Jun 24, 2004
John Mackenzie

John Mackenzie manages private capital and hosts a gold forum/investors exchange on Yahoo! groups.

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