Slashdot points us to the story of how two Norwegian day traders have been convicted and given suspended jail sentences for outsmarting an automated computer trading system, enabling them to make money. The details are not entirely clear, but from what's in the article, it sounds like they observed some patterns in the way the system responded to certain trades, and then they took advantage of that. Of course, that's exactly what automated computer trading systems, themselves, are supposed to do. They're supposed to notice patterns in trading and take advantage of that. So, would it have been illegal for the same automated trading system to notice patterns in certain human trades and take advantage of it?

Over the last few years, a few companies have been trying to set up financial markets for buying and selling movie derivatives. Effectively, it was a way to financially bet on the performance of certain movies -- whether long or short. There are all sorts of markets like this, and it's difficult to come up with any reason not to allow them -- but, of course, the MPAA cobbled together a bunch of complaints, including the idea that this would encourage more file sharing, as short sellers attempted to undermine the performance of a movie. So, it seemed like good news last week when regulators from the Commodity Futures Trading Commission voted to approve one of these operations, the Trend Exchange, from Veriana.

But it appears that victory was very short-lived, as Congress banned such offerings in the middle of the night last night. Basically, the MPAA was able to shove this issue into the Wall Street Reform bill which has widespread support, and politicians who didn't want to hold it up any more refused to take that provision out (which would have involved a fight).

Apparently Hollywood is so afraid of free markets that it has to oppose them every chance it gets.

See Update Below. Well here's an idea that must have sounded good at one point. Upstart online brokerage Zecco (already known for pulling attention-grabbing stunts) had the bright idea for April Fool's Day to load up users' balances with much more money than they actually had -- sometimes millions more. Except... it looks like they never bothered to make sure people couldn't use that money. So plenty of users started making trades with the fake money... and when Zecco realized it, the company apparently started to force sell, even at a loss, charging the losses to the customers along with a "$19.99 broker-assisted trading fee." Oops. Update: Consumerist has updated their post with a message from Zecco claiming that it was not an April Fool's joke, but noting "Some clients may experience incorrect display of Buying Power and Account Balances." It's not entirely clear how those "incorrect displays" were apparently off by millions in some cases. Update 2: Zecco is again insisting this was not an April Fool's joke and that it was "a bad feed" from a vendor. It's not entirely clear why it took the firm 5 days to explain that, however...

At the end of last week, the latest banking scandal started hitting the wires as news broke of a low level trader for the French bank Societe Generale was somehow able to lose the bank $7.2 billion by sneaking around various control and security systems to make a series of complex bets, well beyond what he should have been allowed to do. Many people are comparing it to the case of Nick Leeson, who brought down Barings bank over a decade ago -- though, with Leeson, it only took a little over a $1 billion. And, over the weekend, the details got worse. That $7.2 billion loss came on bets up to $73 billion. It certainly raises plenty of questions about the controls that are in place. No matter how sneaky you are, you would think that $73 billion would be pretty hard to trade without anyone noticing. Apparently not. The trader in this case, Jerome Kerviel, supposedly had a detailed understanding of the security systems thanks to an earlier job at the bank, that involved monitoring the trading systems and then used other people's accounts and falsified documents to hide his tracks. Even so, you would think that someone would have taken notice of $73 billion moving around. Societe Generale claims that, unlike Barings, it can easily survive this fraud and will even turn a profit. Of course, at the same time, it also announced it needs to raise $8 billion -- and given the size of the loss, that certainly makes it sound like the bank needs to replace that money pretty quickly.

It's being reported today that two companies closely associated with the last stock market bubble, TD-Ameritrade and E-Trade, are in talks to merge. Both companies have evolved to become comfortably profitable established firms, but throughout their history they have been dogged by steep price competition and high customer acquisition costs (as evidenced by the constant stream of TV advertising from both firms). Furthermore, active management of individual stock portfolios has never again reached the heights experienced during the bubble, as investors have turned to things like ETFs and other index funds, which don't lead to as many commissions. A merger could help both sides reduce costs, although there's still a lot of competition in this space, which would make it hard for them to raise prices too much. That being said, Dealbook points to some reasons to doubt the significance of these rumors. The two sides have said in the past that they'd be interested in exploring a combination, but there's nothing new now to suggest a deal is imminent. Furthermore, any deal would be beset by organizational challenges, as TD-Ameritrade is a unit of the larger Toronto-Dominion Bank, meaning E-Trade management would have to step out of the way. So, most likely, the two sides are likely to remain separate, and you can expect a continued flood of annoying brokerage ads (until the next time the market nosedives, that is).

The stock market has been taking a pounding over the past several sessions, but yesterday's action brought some relief as the major indices surged towards the close. There was no obvious catalyst for the move, although late-session reversals aren't all that rare. So, should investors be relieved that buyers stepped into the market? Not necessarily -- it would appear that the late really was simply caused by a so-called fat finger error. Basically, a trader at a major Wall Street firm messed up on an order and then had to do some major buying in order to cover for the mistake. Other traders, recognizing the situation, piled on, taking advantage of the sudden buying panic. These type of human errors happen from time to time, sometimes with great significant consequences for the offending firm or trader. In 2005, one such error at a Japanese firm ended up costing $251 million. This time, the consequences probably won't be so severe, although it still seems like it would be a good idea to develop some better preventative controls.