I do not pretend to know what many ignorant men are sure of. -Clarence Darrow

This is the biggest block in our series on market manipulation.  We’re working toward an answer.  How do international banks manipulate the markets to service the U.S. war debt?  Make no mistake about the crash on Thursday.  That was no “fat finger” trader or an “M” accidentally being a “B” nonsense.  Unless you hear “international banks” and “leverage” and “unwind” in the same sentence, it’s not a valid explanation.  It takes hundreds of billions to make a wave in the equities market like that.  It was the fastest point drop in the history of the market.  Only something an international bank is capable of.  The rest of us are just trying not to drown in their wake.

How to Lose Money Betting the Market Will Crash on the Day it Crashes

If George Carlin could have designed an ETF it would be FAZ.  Maybe even with the same name.  It’s an ultra bear’s dream come true.  A way to profit as America circles the drain with financial Armageddon banker zombies roaming the streets while cities burn.  FAZ is a stock that can make +15% while the banks crash -5%.  You’d think it was the perfect stock to trade last Thursday.  It’s one of the fewer and fewer ways a retail trader can profit during a market crash.  There’s a catch.  The crash locked out anyone trying to exit with profit. By the end of the day, if you bought FAZ right before the crash, you actually had a loss.

How could this happen?  NASDAQ is the market maker for retail brokers in FAZ.  They control the bid/ask and retail orders go through them.  The problem is NASDAQ froze all exits on FAZ until the market closed.  They canceled trading in 256 names.  What is suspect is FAZ, and many other frozen stocks, are not on that list. The only way to exit FAZ was to sell in the after hours market on Thursday or wait for Friday’s open.  Essentially, Thursday’s crash created a no-bid market for FAZ and many other stocks.  How do you get zero bids on a stock that trades 165M shares in a day?

Max Keiser, the man who invented high frequency trading (HFT) source code, explains:

Remove all the buy orders that you control (since HFT traffic is 70% of the order flow, if you simply pull your HFT buy orders, you remove a huge chunk of the market – in a heartbeat – leaving a sudden price vacuum). If you wanted to scare congress to vote the way you wanted them to vote – a congress that is directly invested in stocks trading on the exchange and ETF’s tied to the prices on the exchange – just pull your buys. When they do what you want them to do–replace your buys. If you want to make the market go up–pull your sell orders. It works both ways. (It’s all detailed in my Virtual Specialist Technology patent–how to make markets in an ‘infinite inventory environment.’) (Huffington Post)

Keiser is describing a perpetual cash machine for market manipulators.  We’ll cover that later in this story.  Another method to lockout FAZ is this:

• A swap blows up
• The counterparty exposed to the swap blows up
• All swaps in that tranche are frozen
• The market crashes
• ETFs trading those swaps are locked out

The over-the-counter derivatives market could be a contributing reason why FAZ wouldn’t sell on Thursday.  Most ETFs are derivative products that mimic an index, which happen to trade on stock exchanges.  So you have an unregulated OTC instrument moonlighting on a regulated exchange.  If a swap blows up (as the Euro made a new low) it would logically effect ETFs.  Virtually none of the stock ETFs trade in equities.  They don’t own baskets of stocks.  They own baskets in swaps and futures contracts.

Fidelity has been marketing some 20 ETFs which their clients can trade for “free.”  How many of their clients got bent over a barrel this week?  The fine print is full of escape clauses.  These things aren’t insured and there’s no recourse if the exchange or the product fails.

Euro and Swaps

We’re facing a perfect storm loss/loss scenario from hedging activity.  It’s the same AIG shell game, just played on a different street corner that no one is watching.  It took people nearly a year to catchup and understand what subprime mortgage blow ups were doing.  Last week gave us a new bomb ripple in the subbasement of international banks.

Eurodollars are deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S., allowing for higher margins.

The Eurodollar futures contract refers to the financial futures contract based upon these deposits, traded at the Chicago Mercantile Exchange (CME) in Chicago. Eurodollar futures are a way for companies and banks to lock in an interest rate today, for money it intends to borrow or lend in the future.  Each CME Eurodollar futures contract has a notional or “face value” of $1,000,000, though the leverage used in futures allows one contract to be traded with a margin of about one thousand dollars. Trading in Eurodollar futures is extensive, and the market for them tends to be very liquid. The prices of Eurodollars are quite responsive to FED Policy, inflation, and economic indicators.

CME Eurodollar futures prices are determined by the market’s forecast of the 3-month USD LIBOR interest rate expected to prevail on the settlement date. The settlement price of a contract is defined to be 100.00 minus the official British Bankers Association fixing of 3-month LIBOR on the contract settlement date. For example, if 3-month LIBOR sets at 5.00% on the contract settlement date, the contract settles at a price of 95.00. (source)

On Thursday LIBOR hit  0.373% the highest since last August.  On Friday it hit 0.428% while the Euro crashed to a 14-month low against the dollar.  The gigantic interest rate swap market is based on LIBOR.  When the spread jumps 14% overnight someone is taking a massive hit. This concept is to today’s market what subprime was to the crash in 2008.  Let’s explore why derivatives are so important.

As the unregulated derivatives market grew the money that was in equities left for greener pastures.  Basically, the U.S. stock market is like the post-apocalyptic landscape in the movie Terminator.  It’s wounded, illiquid, and controlled by Skynet’s hunter-killer HFT drones who prowl for resistance money.  On Thursday the computers drove the market into a no-bid situation that blew out tons of retail money.  In the vacuum of the program trading nuclear blast Skynet computers, doing one million orders per second, jumped into the void making billions of dollars at our expense.

Swap Market Size

The European derivatives market is a complex mass that’s difficult to understand.  This is precisely why you never get an explanation about it from the media–until it’s too late.  Let’s go through some basics.  This is the largest cash market in the world.  It is growing exponentially as European governments fall. And it can take the U.S. equities market down with shock and awe.

NYSE Euronext European derivatives products ADV in April 2010  increased 51.5% compared to April 2009

NYSE Euronext U.S. cash products handled ADV in April 2010 decreased 26.6% compared to April 2009.  Year-to-date, U.S. cash products handled was down 34.3% from prior year levels.

NYSE Euronext U.S. matched exchange-traded products decreased 42.8% compared to April 2009.   Year-to-date, NYSE Euronext U.S. matched exchange-traded products was 45.9% below prior year levels. (source)

Money is flowing out of U.S. equities and ETFs and into European interest rate swaps.  It’s now the biggest game in town.  The following graph shows who the main players are in OTC derivatives, which are mainly interest rate, commodity, and currency swaps.

Large firms like Goldman Sachs are taking on more risk while smaller firms are cutting back.  Right now 41% of all swaps are backed by $USD.  This is a massive market that can react violently to ripples in interest rates.

The global equities markets are currently worth $45T.  Roughly half the value prior to the 2008 crash. That money did not come back. Compare that to amounts outstanding of OTC single-currency interest rate derivatives by currency (source):

Notional amounts outstanding
Euro $160,646B
US dollar $154,167B

Gross market values
Euro $6,255B
US dollar $6,473B

2009 Interest rate futures
N. America $600T
Europe $550T

The Number of Collateral Agreements in use in the OTC derivative market grew 14 percent over the past year. (source)

What are Swaps

Essentially, it’s the revamped bond market from the ’80s.  Instead of being long Euro bonds the banks turn them into insurance contracts at reduced cost and risk.  If you can borrow Euros cheaply and think the Euro is going up, and LIBOR will stay low, you sell that interest rate swap, or currency futures swap, or options swap, or you name it.  There’s dozens and dozens of ways to game the market with swaps.

In an interest rate swap, each counterparty  agrees to pay either a fixed or floating rate denominated in a particular currency to the other counterparty. The fixed or floating rate is multiplied by a notional principal amount (say, USD 1 million). This notional amount is generally not exchanged between counterparties, but is used only for calculating the size of cashflows to be exchanged.

The most common interest rate swap is one where one counterparty A pays a fixed rate (the swap rate) to counterparty B, while receiving a floating rate (usually pegged to a reference rate such as LIBOR).

At the point of initiation of the swap, the swap is priced so that it has a net present value of zero. If one party wants to pay 50 bps above the par swap rate, the other party has to pay approximately 50 bps over LIBOR to compensate for this.

The interest rate swap market is closely linked to the Eurodollar futures market which trades at the Chicago Mercantile Exchange.  (source)

How LIBOR is Created

Each cash desk in a contributor bank has a Thomson Reuters application installed. Each morning between 11.00 and 11.20 [London time] an individual at each bank, typically the currency dealer, takes their own rates for the day and inputs them into this, which links directly to the fixings team at Thomson Reuters.  Banks cannot see each others’ rates as they submit, only after final publication.

This was first developed in the 1980s as demand grew for an accurate measure of the real rate at which banks would lend money to each other. This became increasingly important as London’s status grew as an international financial centre. More than 20 per cent of all international bank lending and more than 30 per cent of all foreign exchange transactions now take place in London. (source)

Greek Netting

There’s tons of white papers presented to the Fed’s board of directors (prior to 2008) that say risk in swaps is low because it’s a new market and nothing has blown up yet.  This was an interesting statement:

The interest swap market has been increasingly taking on a benchmark role in the broader fixed income market that had previously virtually been the exclusive domain of U.S. Treasury debt securities. Given its greater prominence for the financial markets as a whole, the question of assessing the ability of the swaps market to continue to function without major impediments–such as heightened concerns about counterparty credit risk–when other (less liquid) markets are disrupted gains special significance. (source)

Here’s where Greece comes in.  It’s been on the verge of bankruptcy for two years, but was able to maintain a reasonable credit rating until last week.  Much of the swap market is built on the assumption of equal liquidity.  A practice called “netting” is used to mitigate risk.

Netting: Rather than exchanging fixed and floating payments on the dates specied in the swap contract, the values of the two payments are netted, and only the party with a net amount due transfers funds to its counterparty. (source)

This is good in theory, but the reality is most firms rehypothecate.  Basically they take all the money that netting is supposed to protect and often bet it against that same contract as a hedge. Division A does one thing and Division B bets against it, and neither knows.  Such was the case with AIG blowing up.  In the case of Goldman Sachs, they know and decide to commit fraud anyway.

Rehypothecate:  Involves the re-use of securities delivered. A dealer receiving securities as collateral may re-use the same security, to collateralize its own exposure with its counterparties for example. In the case of cash collateral, rehypothecation involves either using the cash received as collateral to buy investment securities, or to lend on to others, or to collateralize other derivatives exposures.

Forty-four percent of all respondents and 93 percent of large dealers report rehypothecating collateral.  Over 80 percent of collateral is in the form of cash deposits. (source)

Counterparties depend on the solvency of each other.  That solvency is put into question when the cash deposits are used to place more bets.  Risk is layered on more risk.  Then when a credit rating is dropped it triggers termination clauses.  This creates a run on the banks.  This happened in the mortgage backed securities market a couple years ago.  It’s a perfect example.

What Blow Ups Sound Like

One of the best authors on bond market blow ups is Michael Lewis.  He just wrote a great article in Vanity Fair about Michael Burry, the first man to short subprime.   Here’s an excerpt.

On June 14, 2007  the pair of subprime-mortgage-bond hedge funds effectively owned by Bear Stearns were in freefall. In the ensuing two weeks, the publicly traded index of triple-B-rated subprime-mortgage bonds fell by nearly 20 percent.

Just then Goldman Sachs appeared to Burry to be experiencing a nervous breakdown. His biggest positions were with Goldman, and Goldman was newly unable, or unwilling, to determine the value of those positions, and so could not say how much collateral should be shifted back and forth. On Friday, June 15, Burry’s Goldman Sachs saleswoman, Veronica Grinstein, vanished. He called and e-mailed her, but she didn’t respond until late the following Monday—to tell him that she was “out for the day.”

“This is a recurrent theme whenever the market moves our way,” wrote Burry. “People get sick, people are off for unspecified reasons.”

On June 20, Grinstein finally returned to tell him that Goldman Sachs had experienced “systems failure.”

That was funny, Burry replied, because Morgan Stanley had said more or less the same thing. And his salesman at Bank of America claimed they’d had a “power outage.”

“I viewed these ‘systems problems’ as excuses for buying time to sort out a mess behind the scenes,” he said. The Goldman saleswoman made a weak effort to claim that, even as the index of subprime-mortgage bonds collapsed, the market for insuring them hadn’t budged.

What this Means

See the parallels here?  Subprime bonds fell 20% creating a squeeze on credit.  We have LIBOR rising which is putting a squeeze on–basically everything. Instead of power outages we have lockouts and canceled orders.  The same ridiculous excuses are given to obscure reality.  Fat fingers with Bs and Ms?  Thursday’s crash is wake up call for complacency.  However, it’s being sold as an opportunity for dip buying.

The stock market is a perpetual cash machine for international banks (IBs).  It’s a game invented in the 1700s by London stock manipulators (see story).   Make the market go parabolic, then crash it to pay off war debt and protect Treasuries.  Dr. Ellen Brown has one of the best explanations for what’s going on:

The Wall Street Ponzi Scheme

The Ponzi scheme that has gone bad is not just another misguided investment strategy. It is at the very heart of the banking business, the thing that has propped it up over the course of three centuries. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top.

The Wall Street Ponzi scheme is built on “fractional reserve” lending, which allows banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves,” essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.

The problem is that banks create only the principal and not the interest necessary to pay back their loans, so new borrowers must continually be found to take out new loans just to create enough “money” (or “credit”) to service the old loans composing the money supply. The scramble to find new debtors has now gone on for over 300 years – ever since the founding of the Bank of England in 1694 – until the whole world has become mired in debt to the bankers’ private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are “all borrowed up.” (source)

First time home buyer credits are now expired.  The Fed can’t lend money for free indefinitely.  Soon the U.S. will be forced to raise cash.  The Fed will have to raise the prime rate and it will stress the system.  Unless prime dealers (IBs) unload their leverage without tanking the market.  This is the cornerstone.  Banks are levered up on low interest rates. Those swap positions have to unwind without creating cascading sell-offs.
Much of the recent rally was short covering.  New highs on very low volume.  That’s not new money buying up the market.  We know European derivatives volume is up 50% and U.S. stocks and ETFs are down 50%.  The 2010 rally was a short squeeze used to cover real distribution by large banks.  They have to unwind before interest rates are raised.

Think GLD is Safe?

There’s one last concept that is important in this pyramid.  People invested in GLD/SLV in lieu of owning the real metal are directly exposed to blow ups in the OTC derivatives market.  Another no-bid scenario like Thursday could wreak havoc in commodity ETFs.  This is a partial list of the major ETFs that were locked out:

Earlier Sunday, Nasdaq OMX announced it has canceled trades made Thursday in 12 additional stocks in which prices were at least 60% above the prior number, or at least 60% less than the earlier price. The additional names mostly included exchange-traded funds and notes, following estimates of 4,000 canceled trades across nearly 300 symbols previously announced. (MarketWatch)

The largest gold ETF is GLD with their vaults sitting in London.  It’s run by a mining consortium, backed by HSBC London, and Bank of NY Mellon as trustee.  Between 1999 and 2002 Gordon Brown sold 60% of the UK’s gold reserves at $275 an ounce.  The year he sold that final ounce the World Gold Council formed. It’s difficult to find out exactly who they are.  It reads like the early history of the Council on Foreign Relations.

So GLD is sponsored by World Gold Trust Services, LLC, or WGTS, which is wholly-owned by the World Gold Council, or WGC, a not-for-profit association registered under Swiss law. The Sponsor is a Delaware limited liability company and was formed on July 17, 2002.  Two years later they create GLD investment trust, formed on November 12, 2004.  The closing price on GLD that year was $44/shr.

The Trust Indenture was amended on November 26, 2007 to reflect the transfer of the listing of the Shares to NYSE Arca.  The close that year was $83.  Today it’s at $118 with a gain of 168% in six years.  In the same period, since Gordon Brown sold his last ounce, gold has gained 340%.

Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust (NYSE:GLD), jumped nearly 20 tons to a record 1,185.787 tons on Thursday. Year to date, however, (GLD) holdings has gained just 50 tons. (Reuters)

They sucker retail investors by marketing GLD as the paper equivalent of owning real gold.  This is a misconception held by gold/silver ETF owners. In GLD you need to own $11.8M in shares to convert the certificates into deliverable gold.  With SLV the number is $850k. The primary banks holding GLD/SLV use it for collateral to short COMEX futures. How many GLD owners know their position is bet against them in a leveraged market? Their $1 in GLD can turn into $15 COMEX shorts suppressing the price of gold.

The indisputable conclusion is that these three banks dominated the market to the extent they represented two thirds of the entire net short position of the commercials and as such they controlled the price of gold which is illegal…

When the derivative positions of the banks are examined it becomes clear that JPMorgan Chase and HSBC together dominate the market. In 2008 they held close to 100% of the entire bank derivatives market in gold and precious metals.  -Adrian Douglas

How JPM Crashed Silver

The manipulation of SLV is more egregious, due to a smaller market, and primarily done by JP Morgan.  The DoJ is in active anti-trust investigation of JPM right now, which they named publicly (source).  JPM has a reported $70T in silver derivatives shorting their own product (SLV) which has a value of $5.2B. During the Bear Sterns take down JP Morgan bought control of Bear’s silver positions. Silver was nearing $21/oz. and about to bankrupt Bear with their short position.

Andrew McGuire, an independent London silver trader, became a whistleblower on silver manipulation.  In March, just prior to a CFTC hearing on gold/silver position limits, he and his wife were victims to a hit and run driver in a London shopping district.  They survived and the perp was caught after a high speed chase.  Testimony was given of this being an assassination attempt. Few details have been published.

McGuire wrote numerous emails to the CFTC warning and explaining how gold/silver manipulation worked during the February low.  He had evidence that JPM and HSBC were driving out long call option holders (source).  The above chart shows a 20% drop in SLV in the two weeks during McGuire’s warnings.  Here is an excerpt:

Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. The non-farm payrolls number will be announced at 8.30 ET. There will be one of two scenarios occurring, and both will result in silver (and gold) being taken down with a wave of short selling designed to take out obvious support levels and trip stops below. While I will no doubt be able to profit from this upcoming trade, it is an example of just how easy it is to manipulate a market if a concentrated position is allowed by a very small group of traders.

Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the U.S. dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added, overcoming any new bids and spiking the precious metals down hard, targeting key technical support levels.

Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels.

Both scenarios will spell an attempt by the two main short holders to illegally drive the market down and reap very large profits. Locals such as myself will be “invited” on board, which will further add downward pressure.

The question I would expect you might ask is: Who is behind the sudden selling and is it the entity/entities holding a concentrated position? How is it possible for me to know what will occur days before it will happen?

Only if a market is manipulated could this possibly occur.

I would ask you watch the “market depth” live as this event occurs and tag who instigates the move. This would surly help you to pose questions to the parties involved.

This kind of “not-for-profit selling” will end badly and risks the integrity of the COMEX and OTC markets.

I am aware that physical buyers in large size are awaiting this event to scoop up as much “discounted” gold and silver as possible. These are sophisticated entities, mainly foreign, who know how to play the short sellers and turn this paper gold into real delivered physical.

Given that the OTC market (where a lot of the selling occurs) runs on a fractional reserve basis and is not backed up by 1-1 physical gold, this leveraged short selling, where ownership of each ounce of gold has multi claims, poses a very large risk. (source)

JP Morgan controls 80% of the world’s gold and precious metals derivatives.  Through monopoly control of the market they took silver under $15/oz.  JPM is the custodian for SLV, the silver exchange-traded fund.  People who own shares in SLV think they own certificates representing silver for delivery.  This has been proven to be a fraud.  JPM does not have the actual silver deposits for delivery.  What they have is $70T in silver derivatives.  Nothing real is exchanged.  At one point, COMEX silver short contracts totaled twenty times the value of the world’s entire silver supply. (source)

Conclusion

Hopefully this lengthy article placed some bricks in alignment.  Bricks that form the foundation of the ongoing Wall Street pyramid scheme.  We learned that the U.S. stock market is illiquid and run by computers that can crash it faster and farther than ever.  We learned that ETFs designed to profit from those crashes don’t work.  They don’t work because they’re based on interest rates products so massive the slightest spike causes market instability.  We also learned that gold and silver products, used for such protection, are manipulated by the very same banks selling them.

There are two main power structures in the U.S.  The formal power resting in D.C. and the real power resting in NYC.  Most people are unaware of how the real power structure works.  We’re talking about shadow banking, the Council on Foreign Relations, old money families, corporations profiting off terrorism, secret global meetings, etc.  Policies and programs designed to squeeze credit and game the system in every way imaginable.

It is a mistake to look to the formal power structure for solutions.  Fundamental problems can never be resolved in that system.  It’s a total illusion to depend on a corrupt political system to solve problems it is complicit in creating. The solution is to attack the real power structure.  Their power can be marginalized.  The more people educate themselves and their friends the less that power is held over us.

Illegal manipulation of capital markets is done in concert with central banks to suppress precious metals, which supports a “strong” dollar.  It’s part of the larger matrix of control in Western finance.  A staggering amount of arbitrage, naked shorts, and other cross trades are designed to support the velocity of credit.  When that velocity nearly stopped in 2008, and credit dealers issued margin calls, it brought the financial system to the edge.

We are living with the same power structure America fought for independence against.  Sam Adams, John Hancock, and much of the Continental Congress were at times violently opposed to New York stock jobbers, the Crown’s money influence, and international bankers.  They did everything they could to insure fellow citizens would not be owned by international banks.  How would they respond to, “We’re all borrowed up.”

Just then the ship took a slight but definite plunge – probably a bulkhead went – and the sea came rolling along up in a wave, over the steel fronted bridge, along the deck below us, washing the people back in a dreadful huddled mass. Those that didn’t disappear under the water right away, instinctively started to clamber up that part of the deck still out of water, and work their way towards the stern, which was rising steadily out of the water as the bow went down. It was a sight that doesn’t bear dwelling on – to stand there, above the wheelhouse, and on our quarters, watching the frantic struggles to climb up the sloping deck, utterly unable to even hold out a helping hand.”
-Charles Lightoller, Second Officer aboard Titanic

Nearly 100 years ago to this very month the unthinkable happened. The “ship that could not be sunk” did so in such a manner it tore the very fabric of reality. Shortcuts were made in the design to maximize profits. These shortcuts were known to the men responsible for the tragedy. Some had warned about the doomed ship, but they could not be heard over the trumpets extolling its historic soundness. Such is the way of man.

Warning Before the Cruise

Trying to figure out what the financial end game is, beyond simple Armageddon, is probably impossible. Right now many conflicting issues don’t make fundamental long-term sense. This is a very complicated maze. However, being lost inside while searching for enlightenment seems a worthy task.

So here we are today, facing such a disaster on a scale unimaginable to people living in 1912. Once again shortcuts known to the men responsible will cause pointless deaths. That’s right, people will die. After Argentina’s 2001 financial crisis a gross majority of the country’s dead were children. Not unlike the Titanic’s third-class kids.

One of the most poignant aspects of the Titanic’s sinking was how the band played on until the final end. This is such a fitting analogy for several reasons. The first is the ship was redesigned down to minimum regulations. This did not leave enough life boats for every man, woman, and child. Secondly, many of her passengers refused to accept the fact the ship was sinking. Keep this in mind as we walk through reports of how badly damaged our financial behemoth is, and how poorly it is regulated (see story).

Much of what you’re about to read is complicated. So complicated it goes beyond the means of this lone author. This story has been sitting for weeks, not knowing exactly how to tell it. Please be patient and sort through it as you may.

Today’s Iceberg

We are on the cusp of another critical seizure in capital flow. An event that might sink the ship. If one of the major banks, or someone like Greece (who is on the verge of bankruptcy), becomes insolvent we’ll see a domino effect of collapses. There was a digital run on the banks last September which nearly froze the credit system. Liquidity is so tight now another run has even greater probability of breaking the system. There is more and more debt chasing fewer and fewer real dollars. Current policy makers believe there is no ceiling to short-term debt creation, baring a collapse. Their formulas tell them the Fed can print money indefinitely, because the Fed is ultimately capitalized. Others are convinced we will learn what the ceiling is before this decade is out.

The Titanic sinking took 2h:40m. The well informed passengers didn’t know for over an hour. Half the critical period was spent in denial. Our financial ship is crippled, but still making power. We all know it has been fundamentally damaged. What we don’t know is the crew jumped ship with the best life boats. Meanwhile we’re up on deck listening to the music play. This is beyond criminal. And most of the unfortunates are stuck down in steerage with no way out. History shows the ship was doomed to sink no matter what was done. If not that year, then another. The lesson learned was how to save the people. Maybe this info will help you save someone.

Where is the Liquidity

One of the logic traps is trying to figure out who is responsible for the system failing. A shark infested waters theory makes it nearly impossible to determine which predator struck first. Did the Fed engineer this. Did prime brokers manipulate the Fed first. Was there collusion to whip every last dime out of debt slaves. Who knows. Let’s look at what we do know, which they thankfully publish in plain sight.

Liquidity is to the capital markets what oil is to an engine. The engine is running out of oil. Even PPT Mobil 1 has performance limits. Here are some of the mechanical issues. Who else is watching the volume seize up on SPY, DIA, and the Qs? These are fundamental stocks with fundamental volume issues.

A lack of liquidity is one of the underlying reasons volume is leaving equity markets.  Liquidity is what gives us an orderly market less prone to price shocks, gap opens, and blatant manipulation.  Margin calls, collateral requirements, risk, and uncertainty has taken much of that liquidity away. Funds have blown up, prime brokers don’t exist in the same space anymore, and capital has made an exodus out of equities into derivatives. Money is moving out of the regulated markets into the unregulated markets. It is lack of regulation on insane amounts of leveraged credit that brought us here.

Thanks to Zero Hedge for their amazing investigative work:

The Capital Markets Liquidity Index subcomponents:

• The Capital Markets US Treasury Bill Index CPMKTLTBI
• The Capital Markets Short Term Large Certificates of Deposit Index CPMKTLCD
• The Capital Markets Commercial Paper Index CPMKTLCP
• The Capital Markets Agency Discount Notes Index CPMKTLDN
• The Capital Markets Banker’s Acceptance Index CPMKTLBA
• The Capital Markets Short Term US Treasury Bond & Note Index CPMKTLTBO
• The Capital Markets Short Term US Federal Agency Index CPMKTLTA
• The Capital Markets Short Term US Corporate Investment Grade Bond Index CPMKTLCBO

Goldman Monopoly

GTM’s (prior story) on how the tri-party repo system works is critical to understand. Since many of the banks funding that system are gone, or incapable of funding, one big shark is left in the lagoon–Goldman Sachs. How do you trade a market when a single entity controls a large and growing share of the daily volume? Goldman Sachs is running about one out of every ten trades on the NYSE.

The FINANCIAL — The New York Stock Exchange, a subsidiary of NYSE Euronext (NYX), on April 9 released its weekly program-trading data submitted by its member firms. The report includes trading in all markets as reported to the NYSE for Mar. 30-Apr. 3.

The data indicated that during Mar. 30-Apr. 3, program trading amounted to 32.6 percent of NYSE average daily volume of 3,343.7 million shares, or 1,089.0 million program shares traded per day.

“Program trading encompasses a wide range of portfolio-trading strategies involving the purchase or sale of a basket of at least 15 stocks,” NYSE reports.

In all markets, program trading by member firms averaged 3,389.9 million shares a day during Mar. 30-Apr. 3. About 32.1 percent of program trading took place on the NYSE, 0.8 percent in non-U.S. markets and 67.1 percent in other domestic markets, including Nasdaq, NYSE Amex and regional markets.

Goldman Sachs is one of 15 major program trading participants. This is one of many examples of GS increasing their stake in a shrinking space. Their principal program purchases of 850 million shares representing 81% of all traded shares, more than half of all NYSE reporting firms principal trades. Program trading accounts for 33% of all NYSE daily volume, and GS runs 30% of those trades.

Dark Pools and Iceberg Orders

That was just Goldman’s share of program trades on a regulated exchange, which doesn’t reflect the vast unregulated market. Dark pools have roughly 10% of all shares traded in the US cash equities market. Dark pools are not public markets. It’s a method to match trades outside of the public eye, and also do what would be illegal transactions in a regulated market. They can be used to reduce market impact when trading large orders. Dark pools of liquidity became very popular prior to the 2007 market top. Firms with buy ratings on stock XYZ could dump shares with little impact. Imagine how important they are today in an illiquid market. Dark pools are also used to game the public market. Trades like iceberg orders can show a 10,000 block sale as a 100 block print.  Read about the basics here.

Guess what bank holds the #1 spot in the dark pool arena? Goldman Sachs and their Sigma X pool, which transacted 156.3 million shares in February 2009. All the dark pool numbers in this data are single-counted. Morgan Stanley recently complained about market participants overestimating dark pool volumes–not so. February had a record number of dark pool transactions. This makes sense in a less than liquid public market doesn’t it. Of that record volume GS controls 15% of it. More evidence of Goldman Sachs having monopoly advantage in a wounded illiquid market. Predators like Goldman need equally skilled competitors to maintain balance of the system. Last summer GTM suggested this might happen (see story). The “crash the market to monopolize it theory” holds more water now.

Where Reality Sinks

As of last December, there is $1,400T (yes that’s quadrillion) sitting in interest rate swaps, mostly split between N. America ($775T) and Europe ($555T). This OTC market dwarfs the cash equities market. It’s hard finding exact global market figures, but NYSE Euronext is $31T. They move more than one third of global stock volume. The regulated U.S. stock market is roughly 2% of the size of the unregulated global derivatives market.

The picture is a decent representation of just how massive the unregulated derivatives market is.  It is not properly scaled for 2009, which is more akin to the Titanic next to a dingy.  Not only is this market massive, it has been growing at a reckless pace, is highly leveraged (over 400:1 in many cases), and is extremely complex.  Critics say the total 2008 derivatives markets value of $1,566,655 billion is misleading, because the number is notional.  Meaning it isn’t real money, but credit agreements between two parties where the principal is never exchanged.  Wasn’t that what AIG was doing in a perfectly safe manner?

Can we also assume a good chunk of those swaps are waiting for the Fed to raise rates? If this is true, we’re in a very precarious situation. On one hand the Fed has to print money until the end of days, and on the other roughly 75% of the world’s total liquidity is trading swaps on the rates. Note: This is a rough educated guess based on BIS numbers.

Some of the big boys in derivatives are using it to play catchup in lieu of their massive recent losses in equities.  The risky trades AIG was doing are still going on. And they’re being placed at an accelerated rate. Some are looking for a slam dunk when rates go back up.  That is not a guarantee and there is a ridiculous amount of levered credit expecting this to happen.

Also, the tri-party repo system has broken down. This might be the prime reason of lower intraday stock market volume, and what appears to be institutional abandonment of index ETFs like DIA/SPY/Qs.  The main entities which loaned money for margin trading, like JP Morgan, are in collections mode. It’s possible the Fed has run out of capital or the need to fund temporary open market operations. These funds are often used to trade index futures. The lack of TOMO activity this year is very curious. The PPT might be fundamentally ineffective for now. Then again they are not necessary during stock rallies. Time will tell.

Life Boats and End Times

Read Deepcaster’s summary of the shadow banking system for new doors to open and explore. You will be in shock. Seeing the actual numbers is madness. JP Morgan had $91 trillion in derivatives as of Sept. 2007. What do they have now after taking on Bear Sterns, which was naked shorted into oblivion before they could offload much of anything.

Each American household owes $455,000 on the U.S. National debt of $53T (pre-TARP). What’s the math on $1.5Q divided into massive global job loss, rampant inflation, and a doubling of the money supply every four years? How does a system that functions purely off the backs of debt slaves work when the slaves stop earning or can’t pay their debts? This feels like a mega tsunami is just offshore. And the guy who works the monitoring station got hit by a bus.

The financial industry is fundamentally doomed. Anticipate a large scale event that uses shock doctrine to control and manipulate people’s minds. Since WW II the ability to master groups and make them susceptible to brainwashing has been perfected. A massive bank collapse could be the catalytic event used to marginalize and control societies in a new direction.

Part 2 Thoughts

Last week John Stewart interviewed Elizabeth Warren. She is the Harvard Law professor (and bankruptcy expert) who chairs the Congressional Oversight Panel for TARP. Stewart asked, “So in your mind the banks don’t see this as a come to Jesus moment?” Watch the show and maybe you’ll be curious about when that day will come.

The next installment in this line will cover the Fed and their manipulation of “free market” liquidity. We’ll explore TOMO/POMO funding, gold manipulation, and PPT charts. There is a way to use TOMO data to go back in SPY volume and say, “See! This is where they pumped money into the market.” It is very time consuming, but it will be done.

Sources:
Greece on the Verge of Bankruptcy
By Manfred Ertel
BusinessWeek April 7, 2009
Why Some Dark Pools Are Increasing Their Volumes
By Nina Mehta
Traders Magazine March 13, 2009
OCC’s Quarterly Report on Bank Trading and Derivatives Activities
Fourth Quarter 2008
Market Intervention, Data Manipulation Still Accelerating
http://news.goldseek.com/GoldSeek/1214722800.php
http://www.finchannel.com/index.php?option=com_content&task=view&id=34403&Itemid=2
http://www.bis.org/publ/qtrpdf/r_qa0903.pdf#page=108
http://www.nyse.com/pdfs/PT041609.pdf

PPT Day Characteristics

These moves typically occur after 2:30pm Eastern while the market is near a new low or breaking point, with a relatively high VIX.  Another characteristic is a large NYSE Adv/Decl negative ratio.  One that is negative 10:1 going into lunchtime typically assures a weak close.  Ratios of 3:1 negative aren’t what you want. They are easier to manipulate by weak bulls. You want a big scary ratio. It is these negative internals that can clue you into the probability of a PPT push.  A big push on a big negative internal is the tell. To instantaneously swing the market around on these days takes a massive amount of concerted capital.

If you watched the market every day last year you know what this looks like.  Using 5min candles on your favorite index you will see an immediate and massive full body candle, sometimes eclipsing the entire day’s range in minutes.  There is no mistaking this move.  It’s a wide-eyed holy crap moment!  After this massive push the market will typically close near the high of the day.

Here is a 15min chart of the SPY from last March–somewhat similar to today.  This is what a breakout looks like:

The PPT pushes are preceded by doom and gloom breakdowns.  These volume pushes fail to buoy the market after a few days.  In some cases it’s a rinse-wash-repeat move over the course of a few weeks.  Learn to anticipate it, regardless of the mechanics of why the push comes.

Often a panic sell-off precedes a PPT push, which breaks down into orderly selling, which causes another PPT push.  Watch for one this week or next week, possibly mirroring this move from last November:

There’s a similar feel to this month, except we’re missing a second PPT push:

Taking the Trade

The key to a PPT day is entering on the first push of a massive volume breakout.  You have to be prepared to enter in a matter of seconds.  That or have a resting buy/stop order sitting above a resistance area on your favorite stock.  Look for an entry that won’t get hit by a false probe.  During these moves it usually doesn’t matter which of the day trade stocks you pick–they all go up.  Some potential stocks right now are FAS MA FSLR GOOG BIDU ICE CME GS and other big liquidity names.  Trade what you know.

A good risk/reward setup are breakouts from tight consolidation ranges.  If you anticipate the move place a market buy order slightly above the range.  When the order fills put in your max loss stop and then be patient to the close.  Another method is to wait 10 minutes after the fill and then put your daily profit stop in.  If the entry was golden (profit stop doesn’t hit) exit manually near the close. It’s possible to get several months of profit off these extreme moves.

This chart of ABK from last year is a great example.  In anticipation of a PPT breakout a rested buy order above $8.70 was placed.  Going big, say 10,000 shares, a market order is a must.  The fill price isn’t as important as catching the momentum.  There is a saying, “Don’t be a prick over a tick.”

Conclusion

The essence of this strategy is catching a home run with a low risk entry.  Holding into the following day is a personal risk preference.  However, using margin hoping for continuation into the next day is very risky.  Follow through days have been trending down for decades now, and are especially thin today.  Hoping that will happen often eats through the profits on a perfect trade.

Many of us right now want to be “realistic” and believe the financial system will correct itself. The optimist in us, with a lifetime of programming, thinks things will get back to normal. The market will right itself over time, like it always has. The truth is our financial system has been so fundamentally damaged we will never return to what we once thought was normal. Watch the following three documentaries and you’ll better understand why this is true.

Reliance on Foreign Capital
Before we get to the films I’d like to expand on a few ideas to ponder while you watch. One is reliance on foreign capital. During the election the issue of the United State’s reliance on foreign oil was hammered over and over. None of us heard scripted speeches on the reliance of massive foreign capital. A reliance that drove Americans to fight England and its corrupt banking system in the American Revolutionary War. Guess what country is #1 in external debt right now. So how did the US fall so far of the path of its national heritage?

Part of it is blind disregard to fundamental systemic threats. The threat of $150 oil has been well known for decades. Only once $150 oil became a reality was the threat real. Do we have to wait for a total collapse of the global financial system in order to deal with a $53 trillion U.S. national debt. Many people want to know, “How can this be happening to the richest country in the world?”

Here’s one theory. In 1972, during his first year as director of the Council on Foreign Relations, Zbigniew Brzezinski wrote:

Nation state as a fundamental unit of man’s organized life has ceased to be the principal creative force: International banks and multinational corporations are acting and planning in terms that are far in advance of the political concepts of the nation-state.

Just How Much Money Can They Print?
The documentaries do an amazing job of explaining how money creation works. Everyone knows the U.S. Treasury has been printing money 24/7 for years. What no one really knows is just how long they can add dollars to the system. What is the ceiling to debt creation? Fundamentally, there is a limit based on bank reserve requirements. Also, print too much and hyperinflation enters the system.

During one of the financial crisis grill sessions Congressman Ron Paul asked Chairman Bernanke:

So my question boils down to this. How in the world can we expect to solve the problems of inflation, that is the increase in the supply of money, with more inflation?

Here is a possible answer. The U.S. Treasury with the backing of the Federal Reserve and World Bank are on the path to bailout the entire system. For the U.S. the plan is: Nationalize all debt that is a systemic threat or go bankrupt. The Fed is on the verge of eliminating minimum bank reserve rates. So basically taking them from 10% to 0%. We touched on this issue in a prior story.

Theoretically when 10% of a bank’s credit is held in reserve there is a limit to how much they can loan. When this rate goes to zero there is no limit. The final stop is thus bankruptcy. So this means an all or nothing push to preserve the fiat money system backing the dollar. It’s rally or fail time.

Films and Quotes
The following three videos do a masterful job at explaining the banking system. They explain how fiat currency works, how a reserve banking system functions, and the problems with these systems. Included are some amazing quotes from each film. Look for future articles here at GTM about the Bank of International Settlements and some more solid numbers addressing the theory of “Rally or Fail.” This concept will be expanded upon for sure!

Video Number One: I.O.U.S.A.
Made by David Walker / Jan. 2008

“Many are starting to ask: Where would the U.S. Government turn if it needed a bailout?”

“The only issue that is more severe than this would be the idea that an Islamic fundamentalist would get his or her hands on a nuclear weapon and use it against us. Beyond that there is nothing that is more severe than this. This issues represents the potential fiscal meltdown of this Nation. And it absolutely guarantees, if it’s not addressed, that our children will have less of a quality of life than we had. That they will have a government that they can’t afford.” -Sen. Judd Gregg (Senate Budget Committee)

“We are trying to consume more than we produce. We can do that in the short run, but over the long run it is of course impossible. Without savings there is no future.” -Alan Greenspan (Fed Chairman 1987-2006)

“The Vice President basically told me, ‘We don’t have to worry about deficits.’ Which I got to tell you was really a shock to me… I think we only need to look at the fate of other countries that lived beyond their means for a long time. You inevitably get into trouble. When you get extended to the point that you can’t service your debt you’re finished.” -Paul O’Neill (Sec. of the Treasury 2001-2002) [mentioned in a prior story]

“The first Baby Boomer will reach 62 and be eligible for early retirement social security Jan. 1, 2008. They’ll be eligible for Medicare just three years later. And when those Boomers start retiring in mass, then that will be a tsunami of spending that could swamp our ship of state, if we don’t get serious.” -David Walker (U.S. Comptroller General 1998-2008)

Video Number Two: Money Masters
Made by Bill Still and Pat Carmack / 1996

Prior to his death published in the NY Times:
“These International bankers and Rockefeller-Standard Oil interests control the majority of newspapers and the columns of these papers to club into submission or drive out of public office officials who refuse to do the bidding of the powerful corrupt cliques which compose the invisible government.” –Theodore Roosevelt

On the day the Federal Reserve Bill passed:
“This act establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed… The worst legislative crime of the age is perpetrated by this banking bill.” -Rep. Charles August Lindbergh

One year after the passage of the Federal Reserve Bill:
“They know in advance when to create panics to their advantage. They also known when to stop panic. Inflation and deflation work equally well for them when they control finance.” -Rep. Charles August Lindbergh

“Increased capital requirements put an upper limit to fractional reserve lending.” -Bill Still

“Our banks cannot loan more and more money to buy more and more time before the next depression, as a maximum loan ratio is now set. It means those nations with the lowest bank reserves in their systems have already felt the terrible effects of this credit contraction as their banks scramble to raise money to increase their reserves to 8%. To raise the money they had to sell stocks, which depressed their stock markets, and began the depression first in their countries.” -Bill Still [refering to Japan which we'll cover in the next article]

Video Number Three: Zeitgeist Addendum
Made by Peter Joseph / Oct. 2008

“We were seeing how very important it is to bring about, in the human mind, the radical revolution. The crisis is a crisis in consciousness. A crisis that can not anymore accept the old norms, the old patterns, the ancient traditions.” –Jiddu Krishnamurti

“Society today is composed of a series of institutions… Yet, of all the social institutions we are born into, directed by, and conditioned upon there seems to be no system as taken for granted and misunderstood as the monetary system.” –Peter Joseph

“The real deception is when we distort the value of money. When we create money out of thin air. We have no savings, yet there is so called ‘capital’.” –Rep. Ron Paul

“New money is always needed to help cover the perpetual deficit built into the system, caused by the need to pay the interest. What this also means, is that mathematically defaults and bankruptcy are literally built into the system.” –Peter Joseph

“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.” –John Adams (President of the United States)

“The majority of the people in the United States have no idea that we are living off the benefits of a clandestine empire. That today there`s more slavery in the world than ever before. And then you have to ask yourself, ‘Well if it’s an empire, then who’s the emperor?’… We do have what I consider to be the equivalent of the emperor, and it`s what I call the Corporatocracy… At the very top of the corporatocracy you really can`t tell where the person`s working, for a private corporation or the government, because they’re always moving back and forth. So, you know, you’ve got a guy who one moment is the president of a big construction company, like Haliburton, and the next moment he’s Vice President of the United States.” -John Perkins

“We can either have Democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both. ” -Louis Brandeis (Supreme Court Justice)

“It’s not politicians that can solve problems. They have no technical capabilities. They don’t know how to solve problems. Even if they were sincere, they don’t know how to solve problems. It’s the technicians that produce the desalinization plants. It’s the technicians that give you electricity, that give you motor vehicles, that heat your house and cool it in the summertime. It’s technology that solves problems, not politics. Politics cannot solve problems, because they are not trained to do so.” -Jacque Fresco

“This tendency to blindly hold on to a belief system, sheltering it from new, possibly transforming information, is nothing less than a form of ‘intellectual materialism.’ The monetary system perpetuates this materialism not only by its self preserving structures, but also through the countless number of people who have been conditioned into blindly, and thoughtlessly upholding these structures, therefore becoming ‘self-appointed guardians of the status quo.’ Sheep, which no longer need a sheep dog to control them, for they control each other by ostracizing those who step out of the norm.” -Peter Joseph

What we are trying, in all these discussions and talks here, is to see if we cannot radically bring about a transformation of the mind. Not accepting things as they are! But the understanding, to go into it, to examine it, to give your heart and your mind with everything you have. To find out a way of living differently. But that depends on you and not somebody else. Because in this there is no teacher–no pupil. There is no leader. There is no guru. There is no master–no savior. You yourself are the teacher and the pupil. You are the master. You are the guru. You are the leader. You are everything! And to understand is to transform what is. -Jiddu Krishnamurti

References:
http://www.iousathemovie.com/
http://www.themoneymasters.com/
http://www.zeitgeistmovie.com/
http://abcnews.go.com/Politics/Vote2008/Story?id=3839318&page=1

One story you will not see in the major media is how and why J.P. Morgan and Goldman Sachs might be the only ones left standing. That’s assuming JPM and MS merge back together. It was the Glass-Steagall Act which broke them up, but thanks to incumbent agenda and Phil Gramm that’s no longer an issue since it was repealed in 1999.

Morgan Stanley’s CEO is John J. Mack. Due to his White House connections he is now in position to lead Morgan Stanley through a period of financial turbulence which was planned for and anticipated by a select group of insiders.

GTM posted in June Gary Aguirre’s whistleblower testimony about Mack (from Wikipedia and MarketWatch):

Aguirre said that he was fired from the SEC on September 1, 2005 because he was aggressively pursuing the investigation and wanted to interview Mack about the findings. According to Aguirre, his efforts to talk to the politically well-connected Mack were blocked by senior SEC officials. This allowed Mack enough time to secure his position as CEO of Morgan Stanley. Had he been investigated in mid 2005 by the SEC, Mack would not have been a viable CEO candidate for Morgan Stanley.

This is stuff that gets people shot, like the O.K. Corral. Our theory is a market crash has been orchestrated or organically allowed to happen. Read our story on the OTC market and you can clearly see how safeguards were prevented by the New York Fed. Like a good ‘ole Western shootout the hedge funds are the ranchers and the large banks are the money men. Some will be sacrificed, but the key families/banks will remain in play. You get the ranchers to kill each other off then snap up their property. Compare the stocks of JPM/MS and GS to the other financial players.

Read our three most popular articles and you will be able to see who is pulling the strings and why they knew this would happen. When you dig into the history of the main players you will find a common thread of prime relationships: social, financial, and political.

For instance, Hank Paulson was Chairman/CEO of Goldman Sachs and on the board of governors of the International Monetary Fund which is closely tied to the Rockefellers who have the Rockefeller Center at Dartmouth where Paulson went to school. They also owned Chase Manhattan Bank which merged with JPM after Phil Gramm paved the way. They sit on the Senate Finance Committee and have guys like Timothy F. Geithner of the New York Fed in their personal think tank called the Council on Foreign Relations.

Guess what corporations sit on that board? That’s right, Goldman Sachs and JPMorgan Chase.

If you’re interested in solar power and free energy you’d be pleased to know General Electric and Big Oil are there too. See our story on who is gaming the solar market.

Like the late great George Carlin said, “It’s a Big Club, and you ain’t in it.”

The point is nothing happens by accident, so be mindful of what you are officially sold as the truth.

The following snippets are from GTM’s three most in-depth articles. Please read the stories and connect the dots for yourself.

Front Running A Systemic Market Crash: PPT Style (posted in July)

“$8.3 trillion of real money is controlling $313 trillion in derivatives!”

This illustrates the sheer magnitude of the problem and the economy-busting potential of a miscalculation. That’s why Warren Buffett calls derivatives “financial weapons of mass destruction.” If there’s a fire-sale in hedge funds or derivatives, there’s nothing the Plunge Protection Team or the Federal Reserve will be able to do to stop a meltdown.

How Manipulators Game the Market (posted in June)

There are roughly 400 key hedge funds linked to illegal activity. In total 11,500 hedge funds have $1.2 trillion under management. Overall, it’s not a big chunk of change. However, that money has a very high cycle rate. Hedge funds execute up to 50% of the daily trading on the $21 trillion New York Stock Exchange. They also do 70% of the trading in the US distressed debt market, US exchange-traded fund market, and the convertible bond market.

Using Crisis To Monopolize Fed Control (posted in July)

Prime brokerage is a service offered by banks and broker-dealers to buy-side investors (typically hedge funds), and is built around financing funds’ positions and facilitating clearing and settlement of their trades. Traditionally, prime brokerage involved financing and securities lending services used by market participants taking long or short equity positions. Over time, the services extended to fixed income and foreign exchange markets. Most recently, a form of prime brokerage known as OTC derivatives prime brokerage has been developed and marketed almost exclusively to hedge funds.