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Microcap & Penny Stocks : Naked Shorting-Hedge Fund & Market Maker manipulation?
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To: rrufff who wrote (3433)5/10/2008 12:18:48 PM
From: rrufff  Read Replies (1) of 5034
 
With respect to this proposal, and feel free to paraphrase if anyone wishes, I think it is a good start, but it doesn't go quite far enough to get to the issue of the MM's exception for "bona fide" market making, and including the option MM exception.

The problem, as I see it, is that we are stuck with 19th and 20th century definitions of market making. There is no excuse in this century of electronic auction trading for any failure to settle beyond a short instant. MM's are not there to line their pockets, they are there to "bona fide" make a market.

In addition, a market maker engaged in bona fide market making activity would not be making a representation at the time it submits an order to sell short that it can or intends to deliver securities on the date delivery is due, because such market makers are excepted from the locate requirement of Regulation SHO. Regulation SHO excepts from the locate requirement market makers engaged in bona-fide market making activities because market makers need to facilitate customer orders in a fast moving market without possible delays associated with complying with the locate requirement.40 Thus, at the time of submitting an order to sell short, market makers that have an exception from the locate requirement of Regulation SHO may know that they may not be able to deliver securities on the date delivery is due.
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