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Non-Tech : Any info about Iomega (IOM)?
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To: Andy Chen who wrote (10396)10/29/1996 11:40:00 AM
From: slipnsip   of 58324
 
MM's do make money on the spread and they do use it as a cushioning zone. One thing to remember, is that if they are the best bid or offer they will get deluged with orders from the whole "STREET" that doesn't make markets in that security. If there are 20 MM's in a security, all 20 of them will buy at the best bid/ask from their own firm and selected accounts/firms they do business with irregardless of where their published bid/ask may be. MM's are competing against one another for order flow. They only go to the best bid/ask position when they want to accumulate or get rid of shares in a hurry or to physch the others MM's out.

If the MM happens to be the best bid/ask and gets nailed by a SOES trader, they will try to quickly move it up or down to get out of the way (Put themselves in a position where they are no longer best). This in itself drives the market up or down purely from the effect of the SOES trading. The SOES guy makes up the spread almost instantly if he is able to drive the market up on his original purchases or down on his sells. Example: current bid ask 20 by 20 1/2. The SOES goes in and nails the MM with 50 thousand shares worth of buy orders. The market maker then moves his bid up to say 21 1/2 because he doesnt want to sell any more shares out of his account. The next listed guy might be 20 by 21. Now the SOES hits him for 10 thousand shares thus the second MM also moves his market up to 21 1/2 to get out of the way as well. Now all the rest follow suit and before you know it the market is 21 by 21 1/2 and the Soes guy is in a profit position on the total avg cost of his purchases.
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