Grandpa's attempt to assist Mary Schapiro and the SEC regarding the "Flash Crash"

Your appeared a bit unsure of yourself Mary while testifying before congress earlier in the week. Grandpa opted to offer his assistance after reading the following:

The Securities and Exchange Commission and U.S. exchange operators are working together to quickly craft a new set of rules designed to curb price volatility in stocks, after tremendous price swings May 6 for reasons that remain unclear.

SEC Chairman Mary Schapiro said Tuesday that regulators haven't found evidence of a "single cause" for the stock-market dive that saw the Dow Jones Industrial Average shed 1,000 points before staging a partial recovery.

Grandpa is an empathetic guy and can only imagine the stress you must be under considering the SEC's overall "misses" on Bernie Madoff, Alan Stanford, Worldcom/Bernie Ebbers, Enron let alone the entire Lehman Brothers thing. The SEC was successful with recent insider trading low hanging fruit however grandpa gives kudos to Zero Hedge for at least 50% credit since they basically handed a couple of these cases on a silver platter to the SEC.

Mary, this might come as a complete shock to you and your peers that Wall Street has been proven to be synonymous with fraud, corruption, deceit, scam and manipulation.

Okay, grandpa digresses. I urge you to focus on daily trading volumes as one could logically argue that it is easier to manipulate the market with lower volume especially considering the robot algorithmic traders consistently represent 60% of the trading volume. Grandpa’s theory is timely given the phenomenal trading results of the Wall Street Investment Banks during Q1 2010.

Grandpa submits the following for your review:

Dow Jones Industrial Average Recap Quarter 1 2010
17 days closed with at least 100 point move
8 of the 17 days, moved up at least 100 points
9 of the 17 days, moved down at least 100 points
3 of the 100+ up days occurred with 200+ million shares traded
0 of 100+ up days occurred with 300+ million shares traded
7 of the 100+ down days occurred with 200+ million shares (78%)
4 of the 100+ down days occurred with 300+ million shares (44%)

At this juncture Mary, the prudent question is why is the volume consistently greater on down days? While you are pondering, allow grandpa to offer one more piece of volume data directly related to the “flash crash”. Grandpa opted to switch to the SPY trade as I maintain it is more challenging to manipulate 500 stocks versus 30 Dow stocks.

SPY Recap
5/12/10 195.3 million and up $1.62
5/11/10 221.0 million and down $.33
5/10/10 313.3 million and up $4.90

5/7/10 637.6 million and down $1.68     Non "Flash Crash" Day
5/6/10 647.3 million and down $3.88   "Flash Crash" Day

5/5/10 328.9 million and down $.70

1.28 billion SPY’s traded over two days with a net decrease of $5.56 (4.8%). During the next 3 trading days, the total SPY’s traded were 729.6 million (57% of the 2 day down volume) however the entire two day loss was returned plus an extra $.63 hostage reward. Mary, are you noting the pattern? Grandpa welcomes an opportunity to forward my spreadsheets.

One other comment...your soon to be announced "circuit breaker" rules once again place the cart in front of the horse since you are not yet sure what caused the "flash crash". Feel free to give me a call over the weekend prior to your big announcement on Monday.

Please note that grandpa's motivation is solely based on positioning grandchildren for better times. I have no political aspirations nor do I seek employment with the SEC.