John,
"I don't understand this, couldn't they (Acqua) simply take out House 84's bids and the lower bids to get the volume they're looking for. If it is Acqua selling as you suspect, what do they care, they just get more shares if the price is lower. Please help me understand why House 84 is limiting Acqua'a ability to realize their volumes.
I am not sure of the exact regulations - they vary by exchange - but it is my understanding (on the TSE) that shorting can only be done on a price uptick or sideways tick. In other words, when shorting shares, you cannot hit the bid if that bid level is lower than the last trade. This is to prevent major shorters taking advantage of negative market sentiment and selling a stock into the ground.
A good example today was the 12k or so, bid at $3.65. Those $3.65 sat exposed on the bid until 2:21pm. Tk, Dundee, or ITG could not touch them since their shares are being shorted, and the lowest price up to that point was $3.66. Acqua to wait until National Bank sold 2k at $3.65, then TK and Dundee came in and took out the rest of the bid with a sideways tick (ie. at the price of the prior trade).
Does that make sense John? Sorry if it sounds confusing, but it's hard to explain.
"Also, what is in it for house 84 to drive up the price. If I'm buying, I want to purchase at the lowest price, why would House 84 think any differently?"
House 84 thinks along those same lines. However, in addition to making a profit, they are also our registered market maker (I believe the term is actually "market specialist" in Canada) and have the obligation to provide and orderly and liquid market for the stock. In other words, when selling is far outbalancing buying, they have a duty to absorb some of those shares in order to not allow crazy price swings. Just the same is true when buyers far outbalance sellers. That is not to say that they must support the price so as not to make it go down or up - they merely mitigate the magnitude and volatility of price swings.
By buying little bits at the offer, they are creating the uptick that makes it impossible for TK to trade below. In other words, they are trying to block Acqua from hitting some of the bids by creating a transaction at a price above where they believe Acqua wants to sell at.
Hope that helps.
joe |
