Tazio,
I believe that a large part of the misunderstanding, angst, and general origin of conspiracy theories arise out of the erroneous presumption that what market makers/dealers do is a service, and not in fact what it is: a business. I attribute much of the message board banter to that sad, and common, misconception.
This, also: if the regulatory bodies think that making dealers reveal their short positions will lead to a better market structure, they'll make it so. If such is the case, I can't imagine it being released any more regularly than existing short sale reports are, which is month-to-month. I don't see how anyone crying "manipulation" would benefit from this monthly snapshot information, but I'd be just as happy to have it out there to show concerned (or misinformed) parties that dealers are not hoarding OTCBB issues, long or short. They may be net long or short at a given period, but as for taking "major" positions in these things? I'm certain that such is just not the case.
And to anyone who would complain about the dealers' ability to short issues nakedly, well, that's how it goes. It's just this simple: if you want the dealer to be on the other side of your trade and put his firms' capital at risk, you can't also tie his/her hands. Incidentally, these same people will complain - at times, in the same breath! - about wide spreads and volatile stocks ;)
The fact is, a market maker can only short sell a stock without affirmative determination ("naked") in the process of acting as a dealer: for example, filling a customer order (an agency transaction) when there is no longer stock in inventory to transact with.
Currently all dealers in NNM stocks are Primary Market Makers. At such time as more criteria is gathered by regulators, there is to be a designation of Primary and another class (perhaps "Secondary") market makers for whom this naked short selling ability will not be permitted. In my estimation, the criteria will likely revolve around the trading profile of the individual firm, for example: how frequently they sell into upticks and buy into downticks, as opposed to dropping away when things get hairy, etc. Perhaps there will be a volume threshold, as weel. But, I'm not sure how close to the designation of a second class of dealer the regulators are, at this point, or whether or not they're still working on such.
At any rate: rules clearly state that a dealer designated as a Primary Market Maker (as they all are, currently) cannot rely on their affirmative determination exemption to engage in speculative short selling for their own account. They can only do so when acting in a bona fide market making capacity, such as previously described. OATS, the Order Audit Trail System currently being phased into Nasdaq systems, will make the already formidible means of tracking this - both electronically and in terms of the required keeping of blotters, trade runs, tickets, and other ROE (records of original entry) - even more intensive.
Proprietary/principal desks have the same affirmative determination that a customer is required to, and that is the department that would, in theory, be actively trading stocks/positioning in size for profit.
And, as discussed in my last message, the idea of a wirehouse or large trading firm "positioning" in drill bits, long or short - is nothing short of hilarious from feasibility, opportunity cost, risk, and general practice points of view.
LPS5 |
