Was something dodgy going on at Merrill Lynch earlier this week ? The firm's stock fell some 12% during market trading Monday, and, after the bell, Merrill, of course, announced more asset writedowns and capital raising. Did someone in the know doing something silly (and illegal), and tip off market participants to bail out ? And then there's the question of the spike in the firm's put option volumes. Could this have been tied to a news leak ?

The smart money says, however, that this was all probably just a coincidence. Reuters quotes Michael Schwartz, chief options strategist at Oppenheimer & Co, who said: 'I don't think the news was leaked. I think it caught the Street totally by surprise......The volatility in its stock and options has been extremely high, and some investors may have been selling put premiums because they were expensive'. What, however, caused the firm's stock price to fall so dramatically Monday ? Well, CNBC says that was simply down to false rumours that Merrill faced a funding crisis.

And Reuters reports that Merrill CEO John Thain has already made a paper profit of some $2m, after buying $11.3m of the firm's stock earlier this week. What a nice little earner.

Finally, The Evening Standard reports that Morgan Stanley declared last Friday that its traders had taken a 2.35% short position in HBOS stock, the day that the HBOS's rights issue closed (you know, the rights issue that Morgan Stanley bankers, the other side of that Chinese Wall, were working hard on for a hefty fee).

The rights issue itself failed to capture the imagination of the market, and underwriters Morgan Stanley and Dresdner Bank were looking at paper losses. (The short position taken by Morgan Stanley, of  course, will not have helped HBOS's share price). But the tens of millions of dollars in profits the Wall Street firm's trading desk is said to have made by going short is thought to have more than offset any potential underwriting loss. Now Morgan Stanley's traders did nothing illegal (UK regulator The Financial Services Authority is apparently satisfied that the firm's Chinese Walls weren't breached), but was it morally wrong for Morgan Stanley to be shorting the stock of one of its biggest clients during a period when the rights issue was key to HBOS's survival plans ? It does all seem a little warped.

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