Flash crash: One trade triggered May stampede
A single futures trade sparked last May’s selling frenzy, driving the Dow Jones industrial average down nearly 1,000 points in 25 minutes, said Michael McKenzie and Telis Demos in the Financial Times. A 104-page “forensic analysis” of the flash crash by federal market regulators found that an unnamed firm—identified elsewhere as Kansas-based fund manager Waddell & Reed—used an automated trading program to sell 75,000 Standard & Poor’s 500 futures contracts, worth $4.1 billion, “with the condition that the order be executed quickly.” Ordinarily such trades take hours to execute.
The trade, made when investors were already jittery over European debt, touched off a panic that “spilled over into the market for individual stocks,” said Kara Scannell and Tom Lauricella in The Wall Street Journal. The plunge was exacerbated when the buyers of Waddell & Reed’s futures contracts promptly sold the contracts they had just bought. The buyers, in fact, were unloading the contracts on one another as their price fell, passing them around like a hot potato. “This feedback loop of selling” continued until prices fell so low that automated buying programs finally kicked in. Regulators are now debating whether some active traders have an obligation to step in with buy orders to halt selling panics.
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Takeovers: Sanofi’s bid for Genzyme turns hostile
Sanofi is done haggling, said Chris Nicholson in The New York Times. The French drug maker went hostile with its $69-per-share, $18.5 billion bid for Boston biotech firm Genzyme after Genzyme management broke off negotiations. Some analysts expect Sanofi to raise its bid, but the French firm is “hesitant to offer more because of Genzyme’s recent manufacturing difficulties,” which have limited production of two of the company’s biggest-selling drugs.
Overcharges: Verizon will offer refunds
Verizon said this week it would reimburse millions of customers who had overpaid for Internet access, said John Sutter in CNN.com. Verizon blamed a defect in its mobile phone software that “caused at least 15 million customers to be charged data fees, even if they didn’t subscribe to data plans.” Refunds of $2 to $6 will appear in subscribers’ bills in October and November. Consumer activists faulted Verizon for a lengthy delay in correcting the overcharges, which were first reported in 2009. The total amount rebated could reach $90 million.
Mobile phones: Microsoft suit targets Android
Microsoft last week sued Motorola for patent infringement, but its real target is Google, maker of Motorola’s Android mobile phone software, said Nick Wingfield in The Wall Street Journal. Microsoft, whose own mobile phone operating software is steadily losing market share, charged that nine features on Motorola phones violate Microsoft patents. Google supplies Android free of charge to handset makers like Motorola. A successful suit would raise the manufacturers’ costs by forcing them to pay royalties to Microsoft.
Housing: More lenders freeze foreclosures
Bank of America and JPMorgan Chase, two of the nation’s largest mortgage lenders, have halted foreclosure proceedings in 23 states, joining GMAC Mortgage, which last month instituted a moratorium on evictions, said Jill Schlesinger in CBS’ Moneywatch.com. The banks will review whether bank employees falsely vouched for the accuracy of foreclosure files. BofA, JPMorgan, and GMAC all admit that “robo-signers” in their employ signed up to 10,000 foreclosure documents a month with little or no review. “This whole fiasco is good for only one group: plaintiffs’ lawyers.”
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