[walden]

I don't do anything with futures, so I have a question-- how does this affect the actual S&P index, if at all? Since the index is computed from the actual prices of the index stocks, wouldn't it be independent of this futures market action? But then, isn't it impossible for the derivatives to get too far out of whack from that from which they are derived?

I don't get how this can work at all. Please expound!

[NotQuiteCricket]

This is a link speculating about 990N (e-mails from several people discussing it) http://www.safehaven.com/forums-4920.htm

Regarding my comment about market manipulation: I'm just cynical & remember the stock market doing some very interesting things in 1998/99 (way down then up a bit at the end of the day).

Here is a link to a google search on 990N http://www.google.com/search?sourceid=navclient&ie=UTF-8&oe=UTF-8&q=990N

I checked SNOPES & Urbanlegends & didn't find anything on this topic, but it appears to be new. Personally, I think that this may be baseless rumors, done to manipulate investors (that is what most stuff posted about the stockmarket on the internet is).

[Starwind]

how does this affect the actual S&P index, if at all? Since the index is computed from the actual prices of the index stocks, wouldn't it be independent of this futures market action?

Arbitrage trading (a kind of programmed trading) between the futures markets and the cash markets (NYSE, NASDAQ, AMEX, etc) via ETF's (Exchange Traded Funds namely DIAs, SPDRs, QQQs, and their smaller E-mini counterparts) bring both futures and cash markets into mutual 'fair value' within minutes of one market or the other moving outside fair value (a narrow spread between the two).

It works both ways. A large move in the cash markets can move the futures markets, but the leverage in the futures markets is much greater and typically a move started in the futures will bring a commensurate move in the cash markets.

[SAJ]

The effect is indirect. There are a huge number of what are usually called ''index funds'', involving a gigantic pool of capital that trades in nothing other that the S&P stocks and/or the S&P Index. If (and I don't have a horse in this race) account 990N or others are rigging one or both futures mkts, then this will force the index funds AND any funds using S&P futures as a hedge to take various actions (discussion on request) that they would not otherwise.

When one of a series of **related** prices is moved artificially from its fair-value level, an arbitrage is created (as you say, things can't get too far out of whack) and these funds, not being arbitrageurs (in many cases by rule), are thereby adversely affected.

There are other negative effects that can accrue, also, but I think it likely that this is the major one, in dollar terms at least.