NYRR,What is going on? Message Board

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Microcap & Penny Stocks : NYRR,What is going on?

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To: alex chang who wrote ()	4/4/2000 4:46:00 PM
From: craig	of 4304

Hi all, I am a new poster to this thread, but have been on others including RB. I asked a question about MM's (who they are, what they do, and why) and received a great response for an RB member. I thought I would post it here in case anyone here needed the same education I did. Poster DLONG on RB: generally when a comapany goes public they have a sponsoring brokerage firm who pays the company for the IPO stock a set price and then proceeds to sell it in the open market.. when a company is listed on national exchange there is usually a buyer for every seller and vice versa but when a company is on the OTC there has to be a brokerage or brokerages known as Market Makers willing to be the middle man to keep every stock "liquid" even if there is no current buyer or seller ( a real person like you or me)... even listed companies use Market Makers (Apple Computers uses A.G. Edwards for instance)... the Market Maker (MM) sets a bid (the price he will pay to buy) and an ask (the price he will sell) .. the profit he makes is the spread between the two... so if I sold 100K shares of HABE (you know this is only a hypothetical :-) and you immediately bought 100K shares, you may be buying my shares, but it will ALWAYS be through a middle man who "owns" the shares, even for a short time, seconds even.. the fun begins when a stock takes off on a run.. a Market Maker can "sell" stock he doesn't have because he has 3 days to settle up with your broker.. after 3 days he must "cover" by delivering the shares to Schwab, or E-Trade or whoever you go through... he can do this by crashing the price ( causing a panic and trying to lower the price sunstantially below what you bought it 3 days ago) or by raising the bid until he can get someone to sell him shares.. in that case it's kind of like a pyramid scheme... as long as the ask keeps going up and people keep buying, he can cover incrementally... BUT I always watch a stock that's running around noon of the 3rd day of the run... invariably there will be a dip.. that's the Market Maker trying to scare people into selling cheap so he can cover at a lower price.. anyway.. MM's are usually regarded with distain, but without them, you'd have a hard (make that impossible) time selling your OTC stock.. simple answer but fairly accurate.. I think :-)

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